U.S. Fast Food Industry – Too Much On The Plate
EmPower Research
April 09, 2008
By Shekeb Naim
Even though it is a mature industry, the fast food market in the United States is seeing a fair amount of upheaval. Competition is tough and survival is difficult. It is no longer enough to just fill someone´s stomach – you have to do it better and faster than others do. Product innovation, customer satisfaction, and differentiated promotions are of utmost importance – now more than ever.
Let us look at the overall scenario of food and eating.
Consumer Behavior: Convenience and time are priorities
People do not have time to manage for food at home, and they wish for a more convenient way of managing this. The dependence behavior on items offered by the players in this industry has increased tremendously in past few years. National Restaurant Association reported that Americans buy a meal or snack from a restaurant at an average of 5.8 times a week, and annual spending on food away from home is $1,078 per person. Placing orders through internet is preferred over telephone, which shows consumers´ inclination toward convenience.
Obesity is one of the major problems faced in the country. Fast food is the biggest responsible factor behind it, but still, people are queuing outside restaurants that are encouraging them to continue indulging in the, very often less than appropriately healthy eating options. What is true, however, is the fact that the fast food players are showing a far greater health orientation in their offerings than ever before.
Product: Food offerings getting healthier due to consumers´ increasing awareness
Bigger is Better: The size of items on the menu is becoming bigger every day, Combo meals are being super sized. Carl´s Jr. is an example of a player who has specialized in mountainous burgers - Portobello Mushroom Burger being one of them.
Diversity of Menu Options: Players like McDonald´s, Burger King, and Wendy´s have also explored the $77 billion breakfast market. Attracted by this new market, Taco Bell launched the ´Fourth Meal´, which is supposed to be had early in the morning, probably after getting back from late night parties.
Health is Wealth: Due to the anti-obesity drive, healthy/low-fat food is the category that is picking up pace. Burger King has launched "Apple Fries" for kids, which is basically apple slices made to look like French Fries. Starbucks offered a new flavor of Skinny Latte (Mocha), Wendy´s came up with Fish Fillet this year, Sonic Drive-In launched fat free Double Berry Smoothies, Taco Bell also introduced a healthier ´Fresco´ menu which offers items with less than nine grams of fat, Jack-In-The-Box also debuted two healthy menu items - Grilled Chicken Strips and Chicken Fajita Sandwich.
Coffee War Between McDonald´s and Starbucks
Coffee is another big attraction for the industry, especially McDonald´s. But how the combination of burger and coffee works does for Mickey D, is not yet known. Its entry into the coffee market has perturbed Starbucks. Starbucks has variety as well as quality and of course, it is difficult for McDonald to compete in these areas. So what is McDonald´s strategy to fight in the coffee market? The answer is: Areas where Starbucks is not strong: Price! Starbucks has never relaxed the price of its coffee and McDonald´s is going to offer coffee at $1. It will also offer free Wi-Fi access partnering with Sony.
On the other hand, Starbucks charges something around $30 per month for the same service.
These aggressive initiatives by McDonald´s coupled with declining performance in the last two years has compelled the Starbucks Board of Directors to elect Howard Schultz as the CEO of the company. Schultz´ strategy to fight back is by product innovation and customer satisfaction through better service and restaurant environment. This is a classical battle – value against price; innovation against tradition; selectiveness against ubiquity; and the result of the battle between these two giants is still to be seen.
Price : The Power of One
America´s restaurant industry is expected to notch up sales of $558 billion in 2008, a 4.4 percent increase from last year. Companies are trying all possible ways to increase their sales. Outlets are open round the clock to increase the sales (sometimes with adverse results of increased rate of crimes in the wee hours).
Industry players are also trying to increase customer traffic with the help of $1 tactics. Wendy´s came up with $1 Stack Attack, Burger King introduced $1 double cheese burger, McDonald´s testing One dollar premium coffee, even Starbucks who never compromised with the price has plans to offer $1 coffee.
Promotion / Advertisement: Influencing Obese Emotionally
Advertisement plays a major role especially in the QSR business. Food industry spends about $10 billion on advertising each year, much of it aimed at kids. Perceptions are very often heavily influenced by advertising and positioning. A case in point is a recent study published in the Journal of Consumer Research, where people were offered Subway and McDonald´s meals that contained the same amount of calories, estimated that the Subway meal contained 35 percent fewer calories.
Other players like Taco Bell, Jack In The Box etc have also started following the path of de-linking "fast food" with "unhealthy". Wendy´s has recently launched an advertisement campaign whose punch line is "Waay better than fast food". This is an attempt to reposition themselves and get away from the deteriorating image of fast food restaurants.
McDonald´s traditional targets have always been moms and kids, in fact families. Researchers from Stanford University conducted an experiment in which kids aged 3-5 were offered food in two ways, one with McDonald´s label and other ´white labeled´. Kids were attracted toward the former.
However, there is of late heated debate about advertising that targets children because of
a) a general overall feeling that advertising has too much of an influence on children, and
b) because of fears of rising ´Child Obesity´. In spite of "Advertisement free child", drive against child obesity, running in the country, McDonald´s advertised in the report card of school kids. It said those who secure good grade in exams would get free ´Happy Meal´. However, the agitation by parents forced McDonald´s to withdraw the initiative.
Burger King on the other hand has a very different way of advertising. It believes in competitive advertising, especially against McDonald´s and Wendy´s in its commercials.
Recently it launched the Whopper Freak-Out campaign. With the help of hidden cameras at outlets, it recorded the reaction of customers in Burger King Outlets when salespeople said that the Whopper was discontinued. Not surprisingly, there were extreme reactions of disappointment from all customers. This campaign was a hot topic of discussion in the blogosphere also and many bloggers were skeptical about the reaction of customers recorded by BK. They felt that the King had paid the people to react favorably towards the brand.
Regulatory: Regulators Restricting Increasing Activities of Food Chains
Rules that are more stringent are expected for fast food chains, for instance, they might have to post the calorie content of food items on the menu card; The New York City Council is forcing them to do so. The council has also banned Trans fat used in the cooking process. In addition, Federal Trade Commission urged fast food chains to review how they sell movie-based toys (featured in kid´s meals) to young children.
A lot of pressure is also exerted by organizations such as PETA (People for Ethnic Treatment of Animals). They demand friendly behavior toward animals. KFC being on their hit list for alleged "cruelty toward chicken". Many players in the industry have switched to CAK (Controlled Atmosphere Killing) which reduces the pain suffered by animals in killing them, just because of awareness created by such organizations among the consumers.
Strategic plan: Not Wise to Stick to US
Because of cut throat competition, increasing prices of raw material, regulatory issues, agitation by social organizations, slow down of the U.S. economy and increasing fuel prices, many fast food chains have diverted their attention from the U.S. to the eastern part of world especially China. McDonald´s is planning to open 120 restaurants in China in 2008, 310 KFC outlets will also be opened in China this year, Starbucks has big expansion plans for European countries. Not only this, the players in the industry are also reducing the ownership of U.S. owned restaurants. For instance, Yum Brands Inc. plans to reduce U.S. restaurants ownership from 20 percent to 10 percent by 2010 and McDonald´s would be selling 21 percent of its company-owned restaurants to franchisees over the next three years.
Now, companies have started looking for options other than U.S. because of the turbulence and saturation in this fast industry of food.
Therefore, all Ps of QSR industry are burning red hot in the US. Consumers prefer convenience but degree of awareness among them is also increasing day by day, which is making the situation tougher for industry players. Better option for such companies would be places or regions where these four Ps are cooler.
Even though it is a mature industry, the fast food market in the United States is seeing a fair amount of upheaval. Competition is tough and survival is difficult. It is no longer enough to just fill someone´s stomach – you have to do it better and faster than others do. Product innovation, customer satisfaction, and differentiated promotions are of utmost importance – now more than ever.
Let us look at the overall scenario of food and eating.
Consumer Behavior: Convenience and time are priorities
People do not have time to manage for food at home, and they wish for a more convenient way of managing this. The dependence behavior on items offered by the players in this industry has increased tremendously in past few years. National Restaurant Association reported that Americans buy a meal or snack from a restaurant at an average of 5.8 times a week, and annual spending on food away from home is $1,078 per person. Placing orders through internet is preferred over telephone, which shows consumers´ inclination toward convenience.
Obesity is one of the major problems faced in the country. Fast food is the biggest responsible factor behind it, but still, people are queuing outside restaurants that are encouraging them to continue indulging in the, very often less than appropriately healthy eating options. What is true, however, is the fact that the fast food players are showing a far greater health orientation in their offerings than ever before.
Product: Food offerings getting healthier due to consumers´ increasing awareness
Bigger is Better: The size of items on the menu is becoming bigger every day, Combo meals are being super sized. Carl´s Jr. is an example of a player who has specialized in mountainous burgers - Portobello Mushroom Burger being one of them.
Diversity of Menu Options: Players like McDonald´s, Burger King, and Wendy´s have also explored the $77 billion breakfast market. Attracted by this new market, Taco Bell launched the ´Fourth Meal´, which is supposed to be had early in the morning, probably after getting back from late night parties.
Health is Wealth: Due to the anti-obesity drive, healthy/low-fat food is the category that is picking up pace. Burger King has launched "Apple Fries" for kids, which is basically apple slices made to look like French Fries. Starbucks offered a new flavor of Skinny Latte (Mocha), Wendy´s came up with Fish Fillet this year, Sonic Drive-In launched fat free Double Berry Smoothies, Taco Bell also introduced a healthier ´Fresco´ menu which offers items with less than nine grams of fat, Jack-In-The-Box also debuted two healthy menu items - Grilled Chicken Strips and Chicken Fajita Sandwich.
Coffee War Between McDonald´s and Starbucks
Coffee is another big attraction for the industry, especially McDonald´s. But how the combination of burger and coffee works does for Mickey D, is not yet known. Its entry into the coffee market has perturbed Starbucks. Starbucks has variety as well as quality and of course, it is difficult for McDonald to compete in these areas. So what is McDonald´s strategy to fight in the coffee market? The answer is: Areas where Starbucks is not strong: Price! Starbucks has never relaxed the price of its coffee and McDonald´s is going to offer coffee at $1. It will also offer free Wi-Fi access partnering with Sony.
On the other hand, Starbucks charges something around $30 per month for the same service.
These aggressive initiatives by McDonald´s coupled with declining performance in the last two years has compelled the Starbucks Board of Directors to elect Howard Schultz as the CEO of the company. Schultz´ strategy to fight back is by product innovation and customer satisfaction through better service and restaurant environment. This is a classical battle – value against price; innovation against tradition; selectiveness against ubiquity; and the result of the battle between these two giants is still to be seen.
Price : The Power of One
America´s restaurant industry is expected to notch up sales of $558 billion in 2008, a 4.4 percent increase from last year. Companies are trying all possible ways to increase their sales. Outlets are open round the clock to increase the sales (sometimes with adverse results of increased rate of crimes in the wee hours).
Industry players are also trying to increase customer traffic with the help of $1 tactics. Wendy´s came up with $1 Stack Attack, Burger King introduced $1 double cheese burger, McDonald´s testing One dollar premium coffee, even Starbucks who never compromised with the price has plans to offer $1 coffee.
Promotion / Advertisement: Influencing Obese Emotionally
Advertisement plays a major role especially in the QSR business. Food industry spends about $10 billion on advertising each year, much of it aimed at kids. Perceptions are very often heavily influenced by advertising and positioning. A case in point is a recent study published in the Journal of Consumer Research, where people were offered Subway and McDonald´s meals that contained the same amount of calories, estimated that the Subway meal contained 35 percent fewer calories.
Other players like Taco Bell, Jack In The Box etc have also started following the path of de-linking "fast food" with "unhealthy". Wendy´s has recently launched an advertisement campaign whose punch line is "Waay better than fast food". This is an attempt to reposition themselves and get away from the deteriorating image of fast food restaurants.
McDonald´s traditional targets have always been moms and kids, in fact families. Researchers from Stanford University conducted an experiment in which kids aged 3-5 were offered food in two ways, one with McDonald´s label and other ´white labeled´. Kids were attracted toward the former.
However, there is of late heated debate about advertising that targets children because of
a) a general overall feeling that advertising has too much of an influence on children, and
b) because of fears of rising ´Child Obesity´. In spite of "Advertisement free child", drive against child obesity, running in the country, McDonald´s advertised in the report card of school kids. It said those who secure good grade in exams would get free ´Happy Meal´. However, the agitation by parents forced McDonald´s to withdraw the initiative.
Burger King on the other hand has a very different way of advertising. It believes in competitive advertising, especially against McDonald´s and Wendy´s in its commercials.
Recently it launched the Whopper Freak-Out campaign. With the help of hidden cameras at outlets, it recorded the reaction of customers in Burger King Outlets when salespeople said that the Whopper was discontinued. Not surprisingly, there were extreme reactions of disappointment from all customers. This campaign was a hot topic of discussion in the blogosphere also and many bloggers were skeptical about the reaction of customers recorded by BK. They felt that the King had paid the people to react favorably towards the brand.
Regulatory: Regulators Restricting Increasing Activities of Food Chains
Rules that are more stringent are expected for fast food chains, for instance, they might have to post the calorie content of food items on the menu card; The New York City Council is forcing them to do so. The council has also banned Trans fat used in the cooking process. In addition, Federal Trade Commission urged fast food chains to review how they sell movie-based toys (featured in kid´s meals) to young children.
A lot of pressure is also exerted by organizations such as PETA (People for Ethnic Treatment of Animals). They demand friendly behavior toward animals. KFC being on their hit list for alleged "cruelty toward chicken". Many players in the industry have switched to CAK (Controlled Atmosphere Killing) which reduces the pain suffered by animals in killing them, just because of awareness created by such organizations among the consumers.
Strategic plan: Not Wise to Stick to US
Because of cut throat competition, increasing prices of raw material, regulatory issues, agitation by social organizations, slow down of the U.S. economy and increasing fuel prices, many fast food chains have diverted their attention from the U.S. to the eastern part of world especially China. McDonald´s is planning to open 120 restaurants in China in 2008, 310 KFC outlets will also be opened in China this year, Starbucks has big expansion plans for European countries. Not only this, the players in the industry are also reducing the ownership of U.S. owned restaurants. For instance, Yum Brands Inc. plans to reduce U.S. restaurants ownership from 20 percent to 10 percent by 2010 and McDonald´s would be selling 21 percent of its company-owned restaurants to franchisees over the next three years.
Now, companies have started looking for options other than U.S. because of the turbulence and saturation in this fast industry of food.
Therefore, all Ps of QSR industry are burning red hot in the US. Consumers prefer convenience but degree of awareness among them is also increasing day by day, which is making the situation tougher for industry players. Better option for such companies would be places or regions where these four Ps are cooler.