Fast Food Tries to Recapture Consumers
May 10, 2002 -- As the tastes of hungry, harried consumers evolve, fast food restaurants themselves are busy concocting recipes to stave off slow sales growth.
The challenges of luring a customer who is both more health conscious and time crunched than ever before has come to the forefront with the pending sale of Burger King by its parent company, the U.K.-based spirits maker Diageo.
Burger King, along with McDonald's, has been suffering from lackluster sales growth in recent years as alternatives like sandwich shop Subway and fast casual restaurant restaurants like Chili's, owned by Brinker International, and the Olive Garden and Red Lobster, both owned by Darden Restaurants, have prospered.
McDonald's, still by far the dominant player with over 30,000 restaurants worldwide and 43.1 percent share of the U.S. fast food market, nonetheless had sales growth of only two percent last year, primarily due to expansion. Burger King, whose parent company does not release its financial data, saw sales of $8.6 billion last year, only one percent higher than $8.5 billion the previous year, according to Chicago-based food service consulting firm Technomic.
At the same time, competitors Subway and Wendy's have fared better. Subway's same-store sales posted a 13 percent gain last year, with overall sales reaching $5.2 billion, up 30 percent from 2000. Wendy's, which launched a new line of Garden Sensations salads in February, saw same-store sales rise 5.6 percent in the first quarter, an improvement from the two percent rise posted for all of 2001.
Changing Tastes
To some extent, the sluggish sales of fast food restaurants can be attributed to the economic downturn.
One indicator reflecting that is the increase in consumers preparing home-cooked meals. That number jumped to 85 percent last year from 74 percent in 2001, according to the Food Marketing Institute. The institute found that people eating in fast food restaurants once or more a week fell to 32 percent from 38 percent.
Harry Milling, who follows the restaurant and consumer products industries for Chicago-based mutual fund tracker Morningstar says the trend away from traditional fast food to other areas has been striking.
"There's certainly been a secular change, and it's not lost on the fast food industry," says Milling.
But analysts say the growth of Subway and Wendy's reflects not only an increased interest in healthier eating, but also those chains' ability to provide a variety of high-quality menu choices in a consistent, fast manner that customers have come to demand.
"What a lot of players have learned is the price has gone as low as it can," says Norman Faiola, associate professor and chair of Syracuse University's Nutrition and Hospitality Management department. "Now they're trying to reinvent themselves."
Whopper of a Change
Burger King has been one chain heeding the call to update its offerings and improve service, starting with a new management team led since last April by former Northwest CEO John Dasburg.
Under Dasburg, Burger King has embarked on a dramatic revitalization effort by launching 14 new products including a veggie burger and a chicken whopper — the company's first new menu introductions in three years. Burger King has also revamped its kitchens so that the food is fresher when it gets to the customer.
And to bring the message across to the consumer, the chain has launched new advertising campaigns featuring stars such as L.A. Laker Shaquille O'Neal and B.B. King.
"We're not completely turned around yet, but we've made significant progress," says Rob Doughty, Burger King's vice president of corporate communications.
Fast Food Getting Faster
Wendy's has also been making improvements, focusing on the all-important increasing speed of service and offering more healthy food options. The chain's new Garden Sensations salads launched in February feature items like Mandarin oranges, grape tomatoes, mixed varieties of lettuce and condiments like low-fat salad dressing and Chinese rice noodles on the side.
And even though Wendy's has garnered the top spot in industry drive-through studies two years in a row (this time with an average service time of 141.73 seconds), it is still going for even faster service speeds.
"Our goal is to serve a customer in roughly 120 seconds or so by the time they place the order until they get it through the window," says Wendy's spokesman Bob Bertini.
Even increasingly popular chains like Subway are not resting on their laurels. Subway recently introduced new gourmet breads and sandwiches like a sweet onion chicken teriyaki sub to its line-up.
Low-Fat Flubs
Fast-food purveyors must walk a delicate balancing act to lure new customers and make their menus more exciting, say industry watchers. By offering new items to win over more health-conscious eaters, they must also make sure to cater to their core audience of fast food aficionados.
A classic example was McDonald's introduction of its McLean burger in 1990, which had two-thirds less fat than its regular burger. The company later dropped the item in 1996 after deciding that customers didn't go to fast-food outlets for low-fat foods.
Too many product introductions with not enough marketing or franchisee support can also cause confusion among consumers, say analysts. They note that product introductions are often an expensive prospect because chains might need to put in new equipment to serve the items.
"Adding a menu item to meet the customers' demand of diversity is not a small issue," says Faiola. "When you're in a McDonalds and you've got a 90-second target, the system has got to be perfect."
And others add that while quality food served quickly in a comfortable clean environment may sound like common sense, it is the execution of the plan that separates the winners from the losers.
"You can grow both sales and profits more reliably just be introducing quality food making sure that the environment is nice enough to sit down and relax. That's what Wendy's has done," says Milling, adding, "These are sort of very basic concepts that are actually pretty difficult to execute."