Recipe for success: fast-food bigwigs vary strategies, menus to make it in 2004 market

Nation's Restaurant News, Jan 12, 2004 by Conor Cunneen

In the fight to gain extra share of stomach in what will be a $440 billion U.S. foodservice market in 2004, according to the National Restaurant Association, strategy is obviously a huge determinant of success. And for the first time in many years, it seems there may be some substantial differences in the strategies of the big players in the fast-food sector.

With all due respect to the key chains in the sector--McDonald's, Wendy's, Burger King and, to a lesser extent, Yum! Brands Inc., parent of KFC, Taco Bell and Pizza Hut--all basically are chasing the same customer at roughly the same price point via similar communication vehicles.

In a market that has become increasingly crowded and has been slowly but surely moving away from the traditional fast-food menu, the requirement to develop new, differentiated and effective strategies is more urgent than ever before.

The most intriguing strategic response to the marketplace comes from Louisville, Ky.-based Yum and its efforts to develop multibrand units across the globe. Yum envisages multiunit concepts featuring KFC and Long John Silver's or Taco Bell and A&W and a number of other combinations. Chairman and chief executive David Novak believes that multibranding is "the biggest thing to happen to the industry since drive-thru." That is a strong statement but one that Yum is living by. The company has created a structure to drive that strategy, which officials believe has the potential for opening 10,000 units in the United States alone.

The advantage for Yum is that this strategy will allow it to leverage its major brands and build penetration for its smaller Long John Silver's, A&W and Pasta Bravo brands.

Long John Silver's, which has about 1200 units, and A&W, with about 500 units, never would be more than bit players in the fast-food landscape had their development been predicated on single-unit openings. Indeed, A&W may never be a giant in the burger category, but if Yum twins the concept with KFC or Taco Bell units, the higher profile could help it grow volume and share in the burger category.

For Yum, financial benefits come through integrated kitchens, staff flexibility and up to 20-percent-greater unit volumes--ultimately resulting in improved unit economics. The consumer benefit is greater choice, which, if executed properly, will generate incremental traffic.

That multibrand strategy is in sharp contrast to that of McDonald's, which is refocusing aggressively on its namesake brand. While Yum's strategy will present serious competition for McDonald's and other fast-food chains in the medium term, that is no reason for McDonald's to follow down the same path. The Oak Brook, Ill.-based giant already has shown that it can grow sales substantially simply by focusing on the basics of quality, service, cleanliness and value.

And the recently announced but long expected decision by McDonald's officials to divest at least some partner brands--Donatos Pizzeria and Fazoli's--will ensure greater corporate focus on the McDonald's concept.

Whether McDonald's really is committed to Boston Market and Chipotle is open to question. Mats Lederhausen, managing director of McDonald's ventures, has been asked by chief executive James Cantalupo to "continue to develop these concepts independently, without significant resource investment by McDonald's."

A potential disadvantage of concentrating only on the core brand is that the chain is restricting itself to playing in a $45 billion hamburger category rather than the quick-service sector, which is more than $130 billion. Ultimately, it also limits the menu choice that can be offered on site. That is far less of ah issue for the burger giant now that it is working hard on becoming, in the words of McDonald's president, Charlie Bell, more "customer relevant."

It does, however, put greater pressure on creating innovative menu items, particularly those that will satisfy the demand for fast-casual fare. As McDonald's innovates, the challenge it will face is ensuring that an already complex menu and operational system does not get bogged down in added complexity. Already, McDonald's average drive-thru time is 40 seconds longer than that of Wendy's, according to QSR magazine's 2003 drive-thru survey.

Wendy's, despite a brief blip during 2003, has been the most consistently successful player in the fast-food sector for a number of years. While the chain continues to build out units, it surely soon will find, as will McDonald's, that that can continue only for a limited period. With just over 5,500 units in the United States, Wendy's long-term goal of building out to 8,500 restaurants is quite ambitious.

The strategy of the Dublin, Ohio-based corporation differs from those of Yum and McDonald's in that it relies strongly on partner brands that will stand on their own. Thus, the slow-but-sure expansion from Canada of Wendy's Tim Hortons chain will continue, as will the development of the company's Baja Fresh chain. Also showing potential is a joint venture with Irish company IAWS, to produce parbaked French bread and confectionery under the Cuisine de France brand.