McDonald’s: Competing Against Fast Casual Dining

MKTG 277/777Jesús Alcázar, Christopher Kuo, Danielle Levite, Brenda Nguyen, Erik Pump

Background (Brenda)• Current market situation (US)

Survey• McDonald's: perception vs. reality

Recommendation for McDonald's• Compete for more market share

o Producto Priceo Placeo Promotion

• Limitations

Agenda

• Fast Food: Food that is prepared and served quickly at inexpensive restaurants with preheated or precooked ingredients

• Fast Casual: Hybrids of quick service and casual dining that provide counter service and offer more customized and freshly prepared dishes than traditional fast-food

Market Trends: From Fast Food to Fast Casual

Fast Food Market o Worth $162 billion o 2.2% growth in sales

revenue

Market Trends: From Fast Food to Fast Casual

Burger IndustryWorth $40 billion

Fast Casual Marketo Worth $22 billion o 5.7% growth in sales

revenue

Fast casual burger segmento 16% growth

Fast food burger segmento 3.2% growth

McDonald's (U.S.): SWOT Analysis

• Strengthso Brand nameo Locationso Advertising o Price

• Weaknesseso Unhealthy imageo Low quality foodo Bad stigma

• Opportunitieso Expansiono Promotionso Healthy trends

• Threatso Intense competitiono Health regulationso More health-conscious

consumers

Five Guys

• Simple, casual and diner environment

• 792% growth since 2006 (32.8% in 2011 alone)o Nearest competitor is Jimmy John's, which grew

241% over the same period

• Entire chain surpassed $1 billion in revenues in 2012

• Worth an estimated $500 million

Measuring Reality v. Perceptions of McDonalds

Primary Research Survey

• Asked respondents to rank McDonald’s, Five Guys, Wendy’s and Smashburger on:o Healthiness, Menu Variety, Price, Quality, and Taste

on a scale of “very poor” to “excellent”

• At end, asked respondents to rank each characteristic from “not important at all” to “very important”

Characteristics

Healthiness

Menu Variety

Price

Quality

Taste

Characteristic Level of Importance

Taste 94%

Quality 82%

Price 65%

Healthiness 61%

Menu Variety 43%

McDonald’s Double Quarter Pounder with Cheese$4.49

Five Guy’s Cheeseburger (Double Patty)$6.39

Price

Price

McDonald’s Large Fries$2.49

Regular Soda (Medium)$1.59

Total before tax: $8.57

Five Guy’s Large Fries$4.99

Regular Soda$2.29

Total before tax: 13.67

• McDonald’s Perceived Priceo 82% of survey respondents cite it as very cheap or

cheap

• Five Guy’s Perceived Priceo 78% of survey respondents cite it as moderate or

expensive

Do Perceptions Match Characteristics?

McDonald’s Double Quarter Pounder with Cheese750 Calories43g Fat19g Saturated Fat1280mg Sodium

Five Guy’s Cheeseburger (Double Patty)840 Calories55g Fat26.5g Saturated Fat1050mg Sodium

Healthiness

Healthiness

McDonald’s Large Fries154 g500 Calories25g Fat3.5g Saturated Fat350mg Sodium

Five Guy’s Large Fries567g1314 Calories57g Fat10g Saturated Fat1327mg Sodium

• McDonald’s Perceived Healthinesso 61% rated as “very poor”o 25% rated as “poor”

• Five Guy’s Perceived Healthinesso 31% rated as “very poor”o 39% rated as “poor”

Do Perceptions Match Characteristics?

Processed Fresh

Excellent

Very Poor

Quality

Taste

Summary of Primary Research

• Severely lagging behind on perceptions for primary characteristics for the customers: taste and quality

• Advantage on price

• Also advantage on healthiness HOWEVER perceptions are unfavorable and customers do not realize

RECOMMENDATIONS

Recommendation – Summary

• Producto Create a higher quality burger

• Priceo More expensive

• Promotiono Change their campaigns – not only fast food, but

also clean restaurants, healthy food, including premium options

• Placeo Same places, change decoration

RECOMMENDATION

PRODUCT

McDonald’s Focuses on Standardized Meals

• Highly standardized across the traditional menu• Customer familiarity with products

PRODUCT

Current McDonald’s Burger Selection

• Salt, pepper, pickles, minced onions, ketchup, mustard

PRODUCT

Current Five Guys Burger Selection

• (Little) Hamburger

• (Little) Cheeseburger

• (Little) Bacon Burger

• (Little) Bacon Cheeseburger

PRODUCT

Five Guys: Customized Product

PRODUCT

• “Five Guys uses 80/20 ground chuck-high quality ground beef containing only steer and heifer meat, which does not include any cow meat or fatty trimmings. We do not use ammoniated procedures to treat our ground beef.”

Five Guys: High Quality Beef

PRODUCT

PRODUCT

Recommendations – Product

• Introduce single new product

• Fully customizableo Bun (Egg vs. White vs. Wheat)o Size (1/3 Pound vs. 1/2 Pound)o Toppings

• Higher quality beef

PRODUCT

Recommendations – Price

PRICE

• Burgers currently in the range of $0.99 to $4.99

• Five Guys currently in the range of $3.39 to $6.99

• New product with an increased price ($6.00 - $6.50)

• Free toppings

New Product in a Distinct Part of Menu

PROMOTION

• McDonalds is one of the most prevalent fast food advertisers: television, radio, newspaper ads, billboards and signage, sponsors sporting events, etc.

• McDonalds spends over $2 billion each year on advertisements --> has sufficient resources to allocate towards extensive advertising campaigns

PROMOTION

McDonald’s Advertising

Comparison – Five Guys Advertising

• Five Guys does not undertake rapid advertising and shuns national advertising campaigns, which they find fake, and instead rely on word of mouth.

• As a result, a considerable portion of the target market is completely unaware of their existence

• In contrast, the giant competitors of Five Guys (McDonalds) carry out intense all-media advertising campaigns which help them create enough attention so as to generate the desired consumer base

PROMOTION

• McDonalds should take advantage of Five Guys' weakness → Lack of Advertising -> Low Consumer Awareness

• It should use its advertising advantage to promote a new premium menu and focus on an enjoyable dining-in experience

Recommendations – McDonald’s Advertising

PROMOTION

http://www.youtube.com/watch?v=kZCbvpJ4O6c

Q: What is portrayed in the commercial?Q: What is noticeably left out?

--> Speed, efficiency, fast-paced

McDonald’s Commercials

PROMOTION

• Fast-casual restaurant that successfully creates an environment that speedily serves specialty foods at moderate prices

• They resemble sit-down diners that act as hang-out spots for friends and family seeking cheaper prices

• Their simple and clean decor enables them to be perceived as a higher-end restaurant with quality food and reasonable prices

PLACE

Comparison – Five Guys

Recommendations – Place

• McDonalds has 13,382 stores in the U.S.

• They should capitalize on their extensive real estate

• Redirect the use of the funds towards purchasing quality meat and remodeling their current stores to enhance customer experience → striving for a more fast-casual environment

PLACE

Limitations / Risks

• Economic

• Legal

• Othero Brand