Hard Times for Hamburgers Hurt McDonald's More Than Burger Kingby
Almost everyone in fast food is struggling to solve for the slow recovery and rising competition, but the pain hasn’t been spread evenly. Burger King has been having a better year than its much larger competitor, McDonald’s. New branding and marketing appear to be working in the land of the Whopper, and it seems more than ever as if the rival burger chains are building different menus and following divergent strategies.
The results indicate that Burger King is “making headway in competing with McDonald’s and other fast-food competitors,” says Darren Tristano, executive vice president at food industry researcher Technomic. He attributes Burger King’s results to “aggressive promotion, discounting”—behold the two-for-$5 sandwich deal—“and some price increase.”
First, a look at the numbers: Burger King reported a same-store sales increase in the U.S. and Canada of 3.6 percent in the third quarter. If you recall, comparable sales in the U.S. at McDonald’s decreased 3.3 percent.
The contrast doesn’t apply just to the U.S. Burger King’s relatively small footprint in Asia proved an advantage during the last quarter, when an expired-meat scandal slammed McDonald’s sales in the region. Burger King’s global comparable sales increased 2.4 percent in the period, compared with 3.3 percent decline for McDonald’s global results. The point isn’t to dwell on famously tough times at McDonald’s but to point out that while the burger business is indeed difficult, some chains are managing to succeed.
For its menu strategy, Burger King decided to develop and promote “fewer and more impactful products,” as Chief Executive Officer Daniel Schwartz put it. That has allowed fora simplified approach in the kitchen, improved service speed, and lower costs for franchisees. Some products are just new permutations of things already in the kitchen. The Rodeo Burger, for instance, is basically a standard burger with onion rings and barbecue sauce. “I think our innovation pipeline, so far, has jumped to resilient from successful,” said Burger King’s President of North America, Alex Macedo, during Tuesday’s earnings call.
As Burger King moves to simplify its menu, McDonald’s is embracing greater complexity. It is pursuing localization and customization, having recently announced plans to let regional groups of franchisees select menu items from the company’s global innovation pipeline and tailor them for local tastes. McDonald’s is also allowing customers to build their own burgers in a small number of test markets.
Burger King has achieved growth without saying much about sustainability, food quality, or health: Its big hit last quarter was the return of the fry-shaped chicken strips called Chicken Fries. McDonald’s seems to have heavily refocused its marketing around those concerns, including the recent “Our Food. Your Questions” campaign and a sustainable beef initiative.
Burger King made a point to investors that it is close to having 40 percent of its U.S. stores remodeled by the end of 2015; the company believes that doing so can lift sales at the improved stores by 10 percent or more. McDonald’s, with a far larger system of stores, appears to be undergoing renovation at a slower rate.
Still, even in the midst of McDonald’s relative troubles, it is worth remembering that its average store still makes about twice as much as the average Burger King restaurant.