The Upstarts Teaching Mc Donald's A Thing Or Two

Limited menu. Low prices. Fast service.

That was the formula the McDonald brothers sold to Ray Kroc in the `50s. It worked brilliantly then. It still does, as a number of McDonald's Corp. competitors are proving (table). PepsiCo Inc.'s Taco Bell has taken the mantra of "feed `em fast and cheap" to heart. So have lesser-known Rally's, Sbarro, and Subway Sandwiches--singled out by restaurant consultant Technomic Inc. as among the fastest growing chains in 1990. And these rivals have won the grudging respect of the masters themselves. "Those guys handed us our lunch," concedes Joseph S. Casper, a 29-unit McDonald's franchisee in Tampa. "They taught us the fast-food game again."

TACO-MAKING ROBOTS. Although each brings its own twist to Kroc's concept, these chains share certain principles: They usually keep buildings and seating capacity small. They specialize in one style of food--Mexican at Taco Bell, for instance, or Italian at Sbarro Inc. And they never forget the first word in fast food is fast. "We felt some of the traditional fast-feeders moved away from what the segment wanted," says Wayne M. Albritton, president of Rally's Inc., a 327-unit burger chain. "That's why we're in existence." Rally's sells cheap burgers exclusively to motorists through drive-through windows on either side of each outlet.Some of these fast-food whizzes have required extensive makeovers. In the mid-1980s, Taco Bell began shifting as much food preparation to outside suppliers as possible, slicing 15 man-hours of work a day from every outlet and reducing kitchen space from 70% to 30% of a typical building. It also slashed prices on a core menu. Result: Sixty percent more customers are eating at Taco Bell than three years ago, pushing up systemwide sales 63%, to an estimated $2.6 billion in 1991. To cut costs further, the company is testing taco-making robots.

But don't expect to see robots replace the carhops at Sonic Corp.'s 1,150 drive-ins. After arriving in 1983, Chief Executive C. Stephen Lynn, a former Kentucky Fried Chicken Corp. executive, created a standard menu around such 1950s fare as chili dogs, cherry limeades, and onion rings, all priced about 10% lower than the competition. He featured fast carhop service and even hired `50s idol Frankie Avalon to plug the 32-year-old chain. Sonic's same-store sales growth has averaged 11.3% for 16 quarters. In fiscal 1991, sales for franchised and company-owned units should rise 13%, to $515 million.

MALL FALLOFF. Subway and Sbarro have also shifted into high gear to catch the burger-weary. Privately held Subway, which specializes in sandwiches made with bread baked daily at each outlet, has been attracting franchisees, thanks to a startup cost of $75,000, compared with $1.6 million for McDonald's. Subway has 5,595 units in the U. S., up from 1,000 five years ago. Family-run Sbarro has recently been boosting units by 20% a year. Descended from a Brooklyn salumeria, or Italian deli, Sbarro serves up lasagna, pizza, and other dishes, mostly in shopping malls.

Still, the Ray Kroc wannabes haven't escaped all the perils of the business. Hurt by the slump in mall shopping, Sbarro's first-half sales for established outlets fell 4%. With its low-price edge now matched by the discounted value menus of McDonald's and others, first-half net income at Rally's fell slightly, to $2.3 million. Double-drive-through burger chains such as Rally's are particularly vulnerable. Says Technomic President Ronald N. Paul: "The only thing they offer is price. If they get anywhere near successful, McDonald's and Burger King can stamp them out."

Stamping out the entire swarm of competitors, though, is impossible. The fast-food customer never had it so good--and the fast-food giants never had it so tough.