Arby's Rescue Plan Finally Gets a Leader

Last Updated May 14, 2010 2:32 PM EDT

The revolving corner-office door at roast-beef chain Arby's has finally stopped turning after more than two years, with the arrival this week of fast-food vet Hala Moddelmog as president. No stranger to the brand, she began her career in marketing at Arby's, but has spent most of her time since 2006 heading the Susan G. Komen for the Cure Foundation. Let's hope her time away from fast food gives her fresh eyes for tackling Arby's continued sales slump, which is dragging down performance at parent company Wendy's/Arby's Group (WEN).

While Wendy's stabilized its sales in the first quarter, Arby's is still in freefall, with sales down 11.5 percent, Wendy's/Arby's said this week. The company also forecast Arby's sales will stay down all year. Giving that negative outlook may seem overly gloomy -- who can tell what the economy will be like by fall? -- but it's a smart move, as it grants Moddelmog some breathing room to work on a turnaround.

Analysts are already betting against her, with Bernstein Research analyst Sara Senatore writing recently, "Arby's dramatic underperformance versus the industry leaders continues seemingly unabated and [suggests] the downward trend will prove extremely difficult to redirect." Sales at sector leader McDonald's (MCD), for instance, are rising.

Moddelmog is in a race against time to boost Arby's sales and in turn get the company's share price up before Wendy's/Arby's becomes just another restaurant takeover target in a season that has already seen the sale of Papa Murphy's and CKE Restaurants (CKR), owner of rival fast-feeders Carl's Jr. and Hardee's. What Arby's has going for it that Moddelmog can build on is its strong identification in the public mind with its classic lean roast beef sandwiches, a differentiated and healthy product compared with typical fast-food fare. So far the chain has failed to sell customers on its point of difference -- this is an area where Moddelmog's marketing background could make a difference.

She'll also need to make headway on the company's price position, which has stayed too high for the times. At last count only about two-thirds of the chain was offering its new dollar menu. Once that's fully rolled out, Arby's will be in a better position to change customers' perceptions that the brand is pricier than its competitors.

One problem that will be tough to do anything about is the condition of the 3,700-unit chain -- many are decades old and need serious sprucing up. It's doubtful the cash will be available to accelerate remodels, so Moddelmog will have to make do with what she's got there.

Perhaps the toughest hurdle to overcome at this point will just be customers' attitudes. At this point, many former Arby's diners are in the habit of avoiding the chain. Arby's will need a powerhouse, breakout marketing campaign to get customers to give their restaurants another try.

Photo via Flickr user Steve Snodgrass
  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include Allbusiness.com and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.