Lower-carb, higher profit

Restaurants find they can fatten their margins by holding prices steady and giving customers what they want - less

July 31, 2004|By Julie Tamaki | Julie Tamaki,LOS ANGELES TIMES

There's at least one clear beneficiary of the low-carb craze, with its bun-free burgers and thinner-crust pizzas: restaurants that have figured out that people will pay the same for less.

The lettuce-wrapped Low Carb Six Dollar Burger, for example, is the hottest-selling sandwich in the Carl's Jr. premium-burger lineup. And it costs $3.99, the same as the Original Six Dollar Burger with the bun, which sports 55 more grams of carbohydrates.

Likewise, Round Table Pizza customers who order the Concord, Calif.-based chain's new "skinny" pizza, rolled thinner to provide 30 percent fewer carbs than the original crust, receive no price break.

"Restaurants are making money on low-carb items," said Dean Haskell, an analyst with JMP Securities, who used a low-carb diet last year to drop 20 pounds. "You're offering products the consumer wants and you're also charging the same price and you're not including the bun."

In fact, sales of the low-carb burger have been credited with helping CKE Restaurants Inc. of Carpinteria, Calif., operator of the Carl's Jr. and Hardee's fast-food chains, report a fiscal first-quarter profit last month, reversing a year-earlier loss.

Brad Haley, executive vice president for marketing for Carl's Jr. and Hardee's, acknowledges that it's slightly cheaper to tuck a burger in lettuce than a bun. But he suggests that the real plus of low-carb offerings - including a Carl's Jr. egg-based breakfast bowl with 5 grams of carbs (and 73 grams of fat) - was in bolstering the company's bottom line by drawing in more diners.

"We were clearly bringing in new customers who had not been going to our restaurants before and who maybe hadn't been eating fast food at all," Haley said.

The benefits have spurred a growing number of chains to cook up carb-conscious concoctions or expand existing offerings, many following the precepts of the popular Atkins diet, which limits the intake of bread, pasta and other foods high in carbohydrates.

T.G.I. Friday's, for example, recently added seven reduced-carb options to its Atkins-approved menu, including two varieties of wines. Cheesecake Factory Inc. of Calabasas Hills, Calif., says the lower-carb remake of its original cheesecake quickly became one of the chain's most requested desserts at the outlets where it was first offered.

In many ways, restaurants are merely giving people what they want. At Round Table, for example, employees noticed customers scraping the toppings off pizzas, leaving part or all of the crust behind. And a customer removing a bun from a burger at a Carl's Jr. store caught the attention of CKE chief executive Andrew F. Puzder, paving the way for his company's lettuce-wrapped sandwiches.

About to dive into a dish of sizzling chicken with broccoli at a T.G.I. Friday's, Donna Somers of Westchester, Calif., said she was delighted with the trend.

"It's a no-brainer," she said as her mother, Shirley Booker, enjoyed a low-carb grilled buffalo ranch dressing chicken salad. "I don't have to take the bread off or request substitutes."

Low-carb items appeal to what most industry observers consider to be a small portion of total diners. And precisely how much they have helped sales is difficult to gauge, industry observers say. Two of the chains that have most aggressively courted low-carb dieters - Subway sandwich shops and T.G.I. Friday's - are privately held and don't report revenue and earnings.

Sales at T.G.I. Friday's are up about 7 percent, said Angie White, a company spokeswoman, since the chain began offering low-carb options in December. "With so many people on Atkins or a low-carb diet, it does bring in new customers," White said.

Said Robert Sandelman, an industry consultant in Orange County, Calif.: "Clearly, it seems like many customers are trying these items, but whether they're buying them again and again, it's hard to say."

Most analysts and consultants suggest that the push toward protein is a passing fad.

"We're past the peak," said Jonathan Waite, an analyst with KeyBanc Capital Markets.

Analyst Glenn M. Guard of Baltimore-based Legg Mason Inc. agreed, adding: "I think we will always have a portion of the public eating low-carb, but I think it will be a small portion of the restaurant-going public."

Indeed, sales of the Low Carb Six Dollar Burger have leveled during the last several months, although Carl's Jr.'s Haley pointed to his company's recent introduction of the Low Carb Charbroiled Chicken Club sandwich and increased competition for low-carb diners within the industry as possible causes.

Restaurants' differing approaches could affect how companies will fare should the public's fascination with low-carb dieting diminish. Not all chains, for example, have laid out large sums of money for research and development before adding low-carb items to menus.

"It's been more intuitive than research-based for a lot of restaurant chains out there," said Dennis Lombardi, executive vice president of Technomic Inc., a Chicago-based food-service consulting firm.

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