A QSR Market Study. What does the category look like?
By Tom Dougherty
The business world is fair. There are clear winners and losers. While outside forces, such as the economy, influence who wins and who loses, the smartest and savviest are usually the ones that come out on top.
Nowhere is that more apparent than the world of quick-service restaurants (QSR). McDonald’s has remained the top dog in terms of market share for decades, having seen a profit every year since 1954. That’s 58 years of unparalleled success.
It has earned it. It has constantly moved the needle among the large burger chains (Wendy’s and Burger King are constantly playing catch-up) and it has the most consistent brand in the market.
Its “I’m lovin’ it” brand perfectly encapsulates its brand of fun, allowing it to dominate the market with $34 billion of revenue in the US alone last year, more than twice the revenue of Wendy’s and Burger King combined.
Sure, it has more restaurants than anyone other than Subway (more than 14,000 in the US), but it has the same number as Wendy’s and Burger King combined – meaning McDonald’s is out performing its burger competitors nearly two to one in in-store sales.
It has consistently added items to its menu, was one of the first to provide healthier options (while still offering up the 540-calorie Big Mac, mind you) and is meaningful to most audiences that share a common denominator.
Why can McDonald’s do it, but others can’t?
Simple. Because McDonald’s has a brand.
It rarely positions itself on the table stakes of the market – the things you have to have (good price, good taste, friendly service, etc.) to be in the QSR market – because its “fun” brand has been imbedded with consumers so powerfully that it is always included in the considered set. (Read about brand positioning here)
Even when McDonald’s markets table stakes, it wins – especially when the rest of the market does the same. That’s because the market leader always wins when all things are perceived to be equal.
Here’s the funny thing, though. The market share McDonald’s owns can be stolen. It will probably always remain on top for several more years, but its market share could erode if the competitors – not just Wendy’s and Burger King, but all QSRs – become different and better.
Update: In January of 2014, McDonald’s announced some erosion of market share. Sales dropped .2 percent in 2013 and the number of customers dropped 1.6 percent. McDonald’s is beginning to seem to consumers like an unfocused mix, especially as places such as Hardee’s markets against the healthy food option aggressively. We suspect we’ll see a major McDonald’s response soon. We’ll keep you posted.
The Wide Net of Competition
To take on McDonalds, you don’t need to be just a burger restaurant. All QSRs are in the consumer’s considered set. That is, Pizza Hut doesn’t just compete with Papa John’s and Domino’s. KFC doesn’t just compete with Chick-fil-A and Popeye’s. They all compete with each other, so share can be stolen from anybody. Not just those in your food sector.
The definition of your competition is what your target audience does that takes the place of what you offer. That means the competition of a QSR is also includes choosing to eat at home or at a nice restaurant. (Read about brand audits to better understand opportunities here)
However, the advertising of QSRs plays later in the decision tree, when consumers have already decided to eat at a QSR (or have it delivered). It’s all about what they offer, occasionally positioned against someone else in their market. (Taco Bell’s “Think Outside the Bun,” Chick-fil-A’s “Eat More Chikin.”) The most powerful brands play as early in the decision tree as possible, and few in the QSR market play effectively at the point of decision.
Kentucky Fried Chicken
KFC used to play well in this area, often promoting a parent bringing home a bucket of chicken. It was a representation of a decision being made early. The suggestion was that the decision was between KFC and eating what’s in the fridge.
After having a lousy 2011 – losing $200 million in sales last year, closing more than 200 outlets and sporting dismal per-store sales – KFC is looking back to that strategy. Its new spot hints that “Dad’s bringing home KFC” is back.
KFC’s not all the way there because it’s focused on the sides (mac & cheese vs. mashed potatoes), but the lynchpin is the fight between those waiting at home (grandpa and grandson).
What the rest of QSRs must remember is that KFC, even though it makes chicken, is a competitor of McDonald’s, Taco Bell, Dunkin’ Donuts and even your local grocery store. They are all fighting for the same share.
Once that competitive set has been established, now begins the process of creating preference – and eating into McDonald’s’ gigantic market share.
In the QSR Market those closest to McDonalds
Although Subway is actually the second largest QSR, Wendy’s and Burger King have been jockeying with each other for position under the McLeader in the burger category with Wendy’s currently holding a slight edge.
But both have been spinning their wheels. In just about every way, they have been chasing McDonald’s by basically aping it. When McDonald’s makes a menu change, so do they. Their only response to McDonald’s brand is to advertise taste and cost, which will not get those choosing McDonald’s to switch. (For “taste” to work, the McDonald’s eaters would have to believe the hamburgers they are eating are awful. If that’s believed, then why are they choosing McDonald’s in the first place?)
The slight rise of Wendy’s has been attributed to a healthier look, as evidenced by this current spot.
Healthy fare, the single-biggest trend in the QSR industry, is welcome, but it’s not the Holy Grail for success. It’s quickly becoming a table stake because everyone has salads and, for places like Wendy’s and Burger King, sales are not the core items. In fact, because of they are fast food, those seeking out healthier will not prefer them.
What has happened is twofold:
- QSRs are scrambling for any advantage for growth and believe it’s about process (meaning, “if we could only grow our menu to reach a wider audience, we’d grow our share)
- Neither Wendy’s nor BK has captured the highest emotional intensity in the market. Think about it this way. Wendy’s new campaign is “Now that’s better.” For that to work, it must believed. It doesn’t suggest that Wendy’s is better (which Wendy’s wants it to suggest), but just that Wendy’s has improved. With the competition also touting healthier fare, it becomes an inside-out promise, not one that differentiates it from the competition.
As much as anything, the jump Wendy’s made over Burger King (and the leap is only by a slight distance) is more of a product of how terrible BK has been in updating its image and trying to become meaningful to target audiences.
After ditching the bizarre and eerie, costumed King, BK has now decided celebrities pitching new menu items is the way to go.
In terms of meaning, this is the same tactic as the Wendy’s spot above. It’s still just, “we have healthy options” without defining who the person is that comes to a Burger King for a salad. (What, we’re celebrities? Not a high emotional trigger in this category. Might work for fashion, not for QSRs.)
The other problem for Burger King is that “burger” is in its name. The permissions to have healthier fare are far less than when you’re identified with a specific meal.
Burger King would be much better served to brand itself at BK – the way the cable channel The Learning Channel has now become TLC – but even that is a problem when you’re offering the bacon sundae.
Which one are you? Healthy or not? The inability to put a stake in the ground, saying you are, who you are for and not for, is killing Burger King.
Who are you?
Most QSRs identify themselves as the type of food they offer, which leaves audiences without a reason to choose between those in the same food category beyond location…and cost.
The Pizza Category
The pizza brands are the worst of these. The top three – Pizza Hut, Domino’s and Papa John’s, in that order in terms of revenues – are currently battling on price. Little Caesars, the fourth-place pizza joint that’s been dying a slow death for years, has seen a mild rebound after offering a $5 pizza.
But it’s a false positive because the top three are also pitching price, and battling hard.
The other two main players are interesting, but for different reasons. Papa John’s is basically pitching a model, built on the personality of its founder, being generally about delivery instead of sit-in and going all-in with sports partnerships (having acquired the :Official pizza of the NFL” label).
The problem with having John Schnatter front and center is that you are tied to a personality with all its strengths and weaknesses. If that personality doesn’t resonate or some scandal negatively affects it, you are tied to that personality because it is your brand.
Dominos has been a fascinating test case. You might remember it copping to bad pizzas a few years ago, a tactic that drew some derision from those within the QSR market but was actually a brave and sneaky smart strategy.
Few actually think the big three make great pizza. It’s comfort food, and honesty – especially couched within a promise to do better – was refreshing. Inherent in the message was that the competitors don’t really try to improve their pizzas.
What developed was a sort of “pizza of the people.”
The result has been an increase in same-store sales and a gain in market share. For the other two, they’ve stood still, with Papa John’s losing some share. When most of the media blitz is about price – each trying to undercut the other – the market became relatively static. In addition, when you market on price that means you must market all the time, because you’re constantly playing catch-up. That’s why you see so many pizza commercials.
Who’s Moving Up and Who’s Moving Down
Interestingly, the QSRs that are moving up are the ones being themselves, comfortable in their own skin. The current darling of the QSR market is Five Guys Burgers & Fries, which started as a family-owned shop in Virginia and has become the fastest riser in the QSR market 15 years later. It took $200 million in profit last year, added nearly 200 new restaurants and expanded to the West where it’s taking on local favorite In-and-Out Burger.
Five Guys feels new to those markets, but its practice has remained the same since inception. Its menu has remained exactly the same since then. Its in-store model is messy in the right way, with peanut shells on the floor and a scribbled sign that shows exactly where its potatoes were grown.
Even without a marketing campaign, Five Guys is a brand with meaning in the market. How can you have a brand without marketing? Those asking the question misunderstand the meaning of brand. Many people think brand is a logo and maybe a theme line. That’s part of it, but they are only the visual representations of that brand.
Your brand is who you are, whom you are for and who you are not for. It’s a position that guides everything you do, from look and feel and message to operations, business model and the many other ways you fulfill your brand promise.
Five Guys developed organically, which meant they were true to their brand of “authentic” and “comfort” from the very start – and never wavered.
You will never find Five Guys including salads on its menu. If it does, the brand would become less believable and something crucial to their brand will be lost.
At some point, as Five Guys grows, it will have to advertise in order to tell a wider population what it stands for. That will be a difficult transition, as businesses such as these inherently know what their brand means but have difficulty expressing it without sounding mundane and clichéd.
Consider Checkers, which merged with Rally’s in 1999, and was known for a double drive-thru and a look nearly identical as Five Guys. It aimed for a small-town, 50’s feel.
Since the merger, however, the company has been struggling as it tries to take on bigger game. It closed 18 stores in 2011, was passed by Five Guys in market share and now has the lowest per-store sales of the top 15 burger QSRs other than Dairy Queen.
Answer: It didn’t have a brand message. It has changed slogans like most of us change light bulbs, using three different ones in the last five years, an absurd number for a brand that advertises so little in comparison to the Big Three.
Currently, they are using “Feast On,” and it encapsulates the problems most QSRs are having.
While being who they are (big burgers) seems correct, there’s no meaningful or emotional switching trigger here. It hasn’t carved out a place in the mind of consumers nor who Checkers is and who consumers are when they eat at Checkers. The only self-reflection of the customer is “I eat cheap burgers.”
There is a sense of desperation here, especially as Checkers has discarded the second drive-thru window for walk-up window and added room inside. It is a brand at sea.
How do you eat into McDonald’s market share? The easy answer is to be different and better, but doing that is hard work and demands QSRs be courageous. It must slay any sacred cows that need slaying and not look back.
Speaking of cows. We haven’t addressed the recent same-sex marriage issue that’s been the center of recent Chick-fil-A news. From a purely brand standpoint, it wasn’t the smartest thing for Chick-fil-A CEO Dan Cathy to say, but it’s far from a deathblow. Chick-fil-A has never made a secret of its conservative leanings (it is closed on Sunday), has carved out a loyal following with memorable advertising (cows who can’t spell).
Among the lost (like Checker’s): Sonic (reverting back to the two guys in the car while it re-groups under a new CEO), Arby’s (recently sold by Burger King), Dairy Queen (it’s “So good its riDQulous” is ridiculous), Long John Silvers (dumped by Yum! Brands, and struggling with a marketing message based on “thick” fish), Boston Market (new CEO, announced a marketing partnership with another failing brand, Blockbuster, that makes no brand sense whatsoever) and Quiznos (lost $500 million).
All have the same problem. They go round and round with the same, tired messages that are currently table stakes and, therefore, have no meaning. Quiznos once thrived because it was the only shop with toasted sandwiches. Now Subway, the second largest QSR in the US with more stores than even McDonald’s, has toasted sandwiches as does Boston Market and even Blimpie.
When you hitch your ride to a product benefit (Mmm…toasty”), you lose instant meaning when everyone else catches up.
Isn’t that the definition of a table stake? Everyone has low prices. Everyone claims taste. Too many of them say they’re fun (like McDonald’s).
The way to beat McDonald’s is define yourself differently from McDonald’s emotionally, strategically and tactically. That means you must find the highest emotional intensity in the market (how QSR customers define themselves), claim it and fulfill it.
Think outside the QSR category. In the beer category, Budweiser is nearly a monopoly, and Miller is fading fast. Why is that? If you see a Miller ad, wait five minutes, then ask yourself which brand of beer that ad was for. Most times you would say, “Budweiser.”
That’s because when all things are equal – from the point of view of the target audience – the market leader wins.
Therefore, if price, taste and “fun” are front and center of your brand – internally and externally – you will lose. “Good Mood Food” (Arby’s) isn’t that far way from “I’ve Lovin’ It.” Neither is “The Unofficial Sponsor of Summer” (Boston Market) or “So Good its RiDQulous.”
Ask yourself: Is your brand different and better? Is it emotional? Does it capture the self-reflection of the customer we want to take from your competitors? Do you fulfill that promise? If not, what changes have to be made?
Answer those questions correctly, put them into action, and steal market share from McDonald’s.