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Waffle Taco to Bacon Sundae: The Restaurant Innovation Game

Burger King's new rib sandwich will compete with McDonald's McRib.
Source: Burger King
Burger King's new rib sandwich will compete with McDonald's McRib.

If the thought of eating a Dunkin Donuts doughnut, egg and bacon-sandwich or Taco Bell's taco with a Doritos shell makes you stop in your culinary tracks, well, that's the point.

Hoping to increase sales and traffic in their restaurants, fast-food and fast-casual operators are cranking up the menu innovation machine to produce items that stray from the gastronomic norm, like Burger King's bacon sundae or Johnny Rockets' Big Apple Shake.

"The pace of innovation has increased dramatically over the past five years," said Darren Tristano, an executive vice president at Technomic. "Consumer preferences are changing more rapidly, product life cycles are shortening and restaurants are on the constant prowl for new, innovative flavor profiles."

Many of these items are offered only for a limited time, which encourages customers to get them while they're still hot (and available.) They're also often geared toward attracting younger pockets.

"Younger consumers tend to be more engaged in trying off-the-beaten-path items," Tristano added. "This has given rise to some over-the-top new items that can be characterized as over-indulgent sizes and flaming hot flavors."

(Read More: Yum or Yuck? Cutting-Edge Menu Items)

Sky-high beef prices are also contributing to some changes on restaurant menus. Earlier this week, McDonald's announced it would be replacing its Angus Third Pounders with three new Quarter Pounders that contain less beef. While two varieties, bacon and cheese and deluxe, would remain the same as the Angus burgers, the third one would be of the spicy variety sought out by younger audiences—a Habanero Ranch burger.

Some of the innovation that restaurants are rolling out is more evolutionary that revolutionary, said Nicole Miller Regan, senior research analyst at Piper Jaffray.

For example, Olive Garden hawked its menu centered mostly around pasta and breadsticks for years even as many consumers embraced low-carb or gluten-free lifestyles.

(Read More: Forget Fat—The Hot, New Thing to Avoid Is Gluten)

"Olive Garden kept on doing the same thing over and over again, but at some point the market changed," Regan said.

"You can be static and do more of the same as long as it's working, but it's going to work until it doesn't," she added.

The company, which is owned by Darden Restaurants, saw its U.S. same store sales decrease 1.2 percent in fiscal year 2012 before it began implementing a slew of changes at its stores, including new lighter Italian options, remodeled restaurants and lower prices.

(Read More: Secret's Out! Hidden Restaurant Menu Items)

Burger King also tried to fill in its menu gaps by adding new salads and expanding its chicken offerings last year and planning a rival to the extremely popular McDonald's McRib sandwich set to debut this summer.

Still, Regan said, "I think Burger King is still at the point in their life cycle of catching up."

Photo: Taco Bell

There is evidence that these new product offerings are often effective in driving sales. Last month, restaurant same-store sales accelerated to 2.9 percent, from 1.3 percent in March.

"Companies with new product news seemed to surge to the top, including Taco Bell … and Wendy's…" said RBC Capital Markets analysts in a recent research note.

Last quarter, Taco Bell same-store sale grew 6 percent, in part due to the success of its Doritos Locos Tacos. The item sold so well that the company added a cool ranch flavor to its original nacho cheese flavor this year.

"We expect to sell about 100 million Doritos Locos Tacos during the second quarter, and this continues to be one of the most successful new product launches in our history," said Richard Carucci, Yum Brands' president.

The success of the fast-casual space is also driving the innovation surge, said Bonnie Riggs, a restaurant industry analyst at The NPD Group, a market research firm.

During the recession, the overall industry saw eight consecutive quarters of negative traffic, but the fast-casual space, which includes companies like Chipotle and Panera Bread, bucked that trend.

NPD Group is also forecasting a down year for 2013, with projections for a slight dip in traffic. This drop could make innovation even more important for restaurants, Riggs said.

"Those who are the most creative and innovative are the ones who are going to win the battle for market share," she said.

-By CNBC's Katie Little. Follow her @KatieLittle Questions? Comments? Email us at consumernation@cnbc.com.

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