17
Oct

Last September Burger King was  sold to private equity firm 3G Capital in a deal valued at $3.26bn (£2.1bn), after having struggled significantly with the crisis and having projected  weaker than expected demand for the rest of the year. In the meantime, its main competitor, Mc Donalds reached an all time high share value due to its sales performance.

Why do we have such a big difference in performance? Why is the recession not hitting both chains in the same way? Hasn´t the BK campaign “Have it your way” worked as expected?

As usual the response is complex but could be understood by the Marketing Strategy that both companies have in place, and specially with how they have coped with the crisis.

The first  reason has to do with SEGMENTATION and TARGETING. Mc Donalds is mainly targeting Families that, during the crisis, has not suffered as much as the 18-34 year old segment of BK,  that has specially been affected by unemployment.

Second reason should be found in the PRODUCT OFFER. While Mc Donalds has worked significantly in diversifying their menus (betting aggressively on alternative dishes like chicken and salads), BK has kept on pushing burgers, ensuring that theirs were best in class. Something that could have worked properly in a scenario where the price for beef had not increased significantly, and there had not been a switch in the taste of consumers, that are now looking for more “healthy” dishes.

Third and fourth reasons could be found in PRICING AND PROMOTION. BK has launched new combos (termed special offers) that turned out to be new product offerings, at very special prices. A movement that could partially offset the sales drop by retaining customers that could have opted for more pricey choices but, had had eventually led to a cannibalization . Moreover, a sort of contradiction was created for, on the one hand they were positioning as best-in-class burger suppliers (with campaigns like “Have it your way”), while on the other one they were advertising heavily their unbeatable affordable combos.

And last but not least, it had also been an issue of DISTRIBUTION. Not really about Distribution Deployment and Franchise Management, but of being unable to optimize the capital spent in their shops, introducing new menus and offerings for the whole day. Which has not been the case of Mc Donalds, that have successfully launched breakfast and brunch offers to ensure more traffic and consumption per customer, in a successful effort to maximize the return on assets and increase the CVE.

Quite a few reasons as you can see. I am aware that some of the points are not that easy to tackle with and require some time to take place and level off. But unfortunately, under the current situation it is not enough to be the King of the Burger Kindgom. You need to be the King of the Inn.

THINK DIFFERENT!!!

Ignacio Gafo

Comments

Nitish Kaul October 20, 2010 - 2:22 am

It was interesting to read the observations mention above. Frankly speaking, BK does not even exist in the part of the world I come from i.e. India, but I can see the good work McD has been up to without even comparing it to BK (which i think would be in my case, a bit unfair).

Firstly, I would like to mention that McD in India is very different from McD in the US. I talk not of the basic fundamental of being an “ultra fast food” provider. I talk of the environment the 2 countries posses. India was not really hit by the economic downturn US faced. The ever growing middle class in India is hitting McD in even greater numbers every year! Having said that, I may also want to mention that the middle class of yesterday is now the upper middle class of today and so on. There has come more liquidity in the system; people have greater purchasing power. What i mean to point at is that McD was considered more or less a luxury 10 years back, today is more common than anything. There is nothing luxurious about it. As a company, it might be of great use to me in a country such as India, where the middle class is huge and ever expanding. For them McD is a HIT!

Secondly, McD projects the classic “moving with the times’ image. It has not deviated from its “Food. Family. Fun” image and in fact, has added a “healthy” angle to itself by adding some greens on its menu. The Breakfast special and the recently launched Chicken Nuggets are quite a hit back home. With more malls and food courts opening, McD gives the consumer more to choose from and on top of that has a brilliant Brand Recall going for itself. (It is found at a distance of every 5-6 kilometers. In a city like Delhi, that is an accomplishment!)

Thirdly, and funnily enough, having watched the advertisements BK has had running in the US as compared to those of McD’s I have to admit that I found McD reaching closer to my stomach …err…my heart than the BK. But it also may be because I come from a land of McD and no BK. I may have a bias in my head somewhere. :-)

All in all, thought provoking read!

Muchas gracias Ignacio.

Benjamin Joithe October 20, 2010 - 6:32 pm

Very interesting Nitish I think in India would also be impossible for BK as most of their menu is based on beef, which is a no-no for most Indians. It’s the same in China (lived there for a long time) – BK is really struggling over there. Even in a city like Shanghai (close to 20m pop.) they only have about 5 or 6 stores. In China they tried to position themselves as premium brand, but I don’t see, that they are making much money from it. McD in China for example was extremely agressive – most stores are now open 24 hours and they also do delivery. No. 1 there is still KFC – they absolutely rule. When you ask Chinese why they prefer KFC over everything they say: at KFC you can still see, that what you are eating is actually a real chicken. BTW I really liked the McD in India incorporating Indian spices in the menu – I think no matter where you go McD is really good in adapting to the local flavors.

Jorge Fonseca November 3, 2010 - 1:46 pm

Besides reason 1 ( family-oriented) , I think McDonalds strategy of diversification, and specially of going “green” really has a large role in explaining the differences. McDonalds tried to take off from the greasy/traditional american fast food image by adapting their menus to each country. In addition, the colours and design of its image also changed, going for “green is better” feel. All these show the capacity to adapt to different times and consumer trends. BK stagnated.
For me it was way more simple : I´ve always loved the Mcdonalds toys since I was a kid !

Jose November 8, 2010 - 11:56 am

I have allways heard that all those meals have more fat than any other food. I even heard about tests of people eating only hamburguers, breakfast, lunch and dinning, and they got sick. is it true?. Can those meals make you feel sick if you eat many of them?.
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