Yet Another Bad Choice

Several times over the past few years I’ve written in this space about the frequently baffling marketing programs attempted by the Burger King Corporation, and the backlash from both the consumers and their own franchise holders as a result of these occasional crimes against good taste. The “Freaky King” ads alone would be enough to make me want to fire my ad agency, but after episodes like the marginally obscene print ads for their foot-long burger and internal management fiascos like demanding that their franchisees sell products for below cost in order to align with national advertising campaigns, I have begun to question why the people running this company haven’t been committed for their own safety. And then I learned that the company had decided to open their newest overseas operation by insulting the royal family of the country they are just about to launch in…

According to an article on the BBC News site, Burger King is about to start operating in Belgium, and have been running an online ad that asks people to choose between a picture of the “Freaky King” mascot character and a picture of King Philippe, the actual monarch of that country, under the heading of “Who is the King?” Apparently, if you select the picture of the actual King, you get a pop-up message asking if you’re sure about that, considering that he’s not the one who will be cooking your fries. A spokesman for the Royal Family has issued a statement saying that they do not approve of this tactic, and would not have given permission for Burger King to make use of the King’s image if anyone had actually asked them…

I’m not familiar with Belgian popular culture, so I can’t tell you what level of offense this ad campaign with rise to with the people being subjected to it. There are places in the world where the royal family would simply ignore this kind of thing, and consider it nothing more than part of being a public figure in an increasingly vulgar world. There are other countries where this sort of campaign would result in the company being sued, banished from the kingdom, or just having all of their local assets confiscated and all of its local management team jailed. And there are other places in the world where this sort of thing might result in outraged subjects boycotting the company, marching in protest, setting fire to their in-country locations, or burning local managers in effigy (or possibly in person)…

What isn’t clear to me is why any company would take such an approach in the first place. In any nation where their actual king is a beloved figure this will be taken as a cultural insult, and in any place where there is a totalitarian government this would be considered an actual incitement to insurrection in the streets (which it actually might be). But regardless of the population’s actual relationship with their monarchy, it’s hard for me to imagine any circumstances under which this type of advertising would be considered a sly in-joke as opposed to yet another tone-deaf attempt by a particularly ugly American company to appropriate some part of the local culture in order to sell food products that are potential health risks…

I’ve read the same things you have about there being no such thing as bad publicity, and to some degree that might be true, but given the worsening relations between the US and Europe during the past few months, and the past week in particular, it just doesn’t seem like the best time to be going around calling attention to American arrogance and tone-deafness. Not that there is ever a really good time to do that, of course…

Pass It Along

I didn’t really intend to do a follow up to the “automated ordering kiosk” stories this quickly, but then I suppose I should remember that I don’t make the news, I just report it. Or at least make nasty, sarcastic remarks about the news, anyway. One of the things I’ve been talking about for a while now is the question of how companies that are suddenly forced to begin paying a higher minimum wage will respond to the situation. With rare exceptions, there are only three ways to deal with an increase in a specific cost (in this case Payroll): lower other costs to compensate, accept a lower profit margin, or raise prices. In theory, if the Federal minimum wage were to be increased to $15 per hour, businesses that employ low-paid workers could attempt to lower other operating costs, raise their prices, or just settle for making less money. Unfortunately, as I’m sure you’ve realized by now, things in business policy and strategy are rarely that straightforward…

Consider, for example, one of the hot spots for this debate: the Restaurant business. Unless you’ve worked in the Food Service industry you may not be aware of it, but in addition to the quick-serve personnel, who almost always start at minimum wage, most of the states allow employers to pay anyone who routinely gets tips at an ever lower rate; often as low as $2.13 an hour. Clearly, getting a salary increase to $15/hour, or even to regular minimum wage, would be a significant improvement for any of these employees. At the same time, the increase in salary costs would hit those companies even harder than usual, since they’d be going from $2.13 to $15 instead of the $7.25 to $15 that everyone else would have to absorb. At that point it seems quite likely that companies in this industry would respond by raising prices – especially considering that they are already doing so…

You can pick up the original story off of the Wall Street Journal site, and the Consumerist site commented on it, too, if you don’t happen to have a WSJ subscription. According to the Journal, restaurants in a number of states are experimenting with a “labor surcharge” added to the bottom of your bill to cover the cost of wage increases. It’s not a new idea, really; as the Consumerist people note, other restaurant chains have tried this before, and the cable television and telephone companies have been using exactly this tactic for years to obscure the amount you are actually paying them each month. Whether or not this will work on a large scale in an industry where people will routinely spend hundreds of dollars on a drink and then balk at leaving anything for their server remains to be seen, of course…

Another interesting question is whether any of these companies will abolish tips altogether, and just attempt to pay their employees a living wage. All of the data we’ve seen over the last few years suggests that forcing people to work for tips does not improve either performance or service, and contributes to several kinds of counterproductive work behaviors. Meanwhile, the handful of companies that have tried eliminating tips have reported better performance, higher morale, and improved customer relations, although some people do have trouble adjusting to not leaving a tip after a lifetime of habit…

I’ve worked on both sides of this issue, as well as seeing it from the consumer side, and I have to admit that while I’ve never had a problem leaving a tip, I’ve seen and felt the corrosive effects of people stiffing tipped employees, either because they are miserable cheapskates, or just sadistic assholes having fun. I’d be perfectly okay paying a bit more for my meals to ensure that nobody ever had to experience any of that crap again. I’m not sure how many customers share my point of view, or how many business owners would be willing to take a chance on this new approach. But unless something derails the $15/Hour movement soon, I suspect we’re all going to find out…

How Stuff Works: Franchises

I was reading a story earlier this week about a man who owned a Dairy Queen franchise who apparently did not understand how a franchise agreement works. I say that because after he went off on a racist tirade that was captured on video and posted online he was still surprised when the parent company revoked his franchise and closed the location he had previously run. The only explanation I can imagine for the original meltdown, let alone the naïve belief that a public apology would be enough to extricate himself from this mess, was that the former franchisee believed that since he owned and operated his own business, no one could call him into account for behaving like an ass in front of customers or making the company look bad. But in a franchise arrangement this isn’t always the case…

You can find the original story from the Washington Post here if you want to, but there isn’t a whole lot more to it. James “Jim” Crichton had been the franchise owner of the Dairy Queen location in Zion, IL, until he was unwise enough to get caught on video yelling racist epithets and profanity at a customer. Although Mr. Crichton tried issuing a public apology and promising to put himself and his staff through sensitivity training, the parent company was no more impressed by that offer than the community in Zion was, although I would imagine the fact that one of the things he was recorded as saying was that he could call anybody anything he wanted to in his own restaurant probably didn’t help in either case…

The reason I am calling Mr. Crichton’s understanding of franchises into question is that control over the operation of these locations is the entire point of franchising a Dairy Queen in the first place – at least, as far as the company is concerned. Selling somebody a franchise license is, by definition, cheaper than building and staffing a new store yourself. Once the franchise makes back the franchise fee the subsequent profits will be much lower for the company, but that can take years, and long before that happens the company should be able to sell another franchise somewhere else. But if it were to become known that any Dairy Queen franchise is selling an inferior product, or, as in this case, an inferior dining experience, the company’s chances of selling either Dairy Queen products or additional franchises will drop significantly…

For this reason, all major franchise contracts incorporate quality standards, and most of the ones that involve consumer services also place requirements on the behavior and conduct of the operator and his or her employees. Without seeing the Dairy Queen franchise contract I can’t tell you how strict their version happens to be, or how draconian the penalties for failing those quality standards are, but the ones I’ve seen from other fast food chains also had provisions that would have allowed the parent company to revoke the franchise under these conditions. In the case of a McDonald’s franchise, the company would not have to return the franchise fee, either, and a McDonald’s franchise can run upwards of $2 million USD just for permission to start one. Unless the Dairy Queen corporation is a great deal more understanding than any other I’ve ever heard of, the tantrum in the linked story may turn out to have been a seven-figure mistake…

Now, I don’t want to suggest that franchises, or even licensing agreements, are by any means simple. There is no way I would ever negotiate, let alone sign, such an agreement without advice of counsel and a great deal of background research. But in all honesty, if I’m going to sign a multi-page contract that not only lays out how much money I have to pay someone else but also the conditions under which they can repossess the property they are selling me without refunding my money, I’m going to be very careful about remaining in compliance with that agreement. Because the fact is, despite the name, you don’t really own a franchised business. You may control certain rights, but ultimately you are operating a branch of somebody else’s company, and they can and will dictate the terms and conditions under which you are allowed to do so…

If that idea bothers you, or if you want to truly have the right to scream any racist, sexist, profane or stupid thing you want in your place of business, then you’re going to have to start your own…

The Trouble With Franchises

Actually, there are a lot of problems with a franchised business model, both from the franchisor’s standpoint and also from that of the franchisee. If you have purchased a franchise from someone then by definition you have given them a large sum of money in exchange for the right to open a branch office of their business and contribute to their bottom line. You may not ever see a dime of that money back; you may in fact go bankrupt even before you make your first franchise fee payment, but the company will still get its money. In some cases this might work out very well, such as the McDonald’s franchises, some of which have been estimated as being worth more than the franchise fee in marketing advantages alone. In other cases it might be a nightmare, as it was for the Krispy Kreme franchise holders who were basically used as a revenue source to enrich the personal fortunes of the CEO and his cronies in the early 2000s…

As bad as that is, things are frequently worse on the franchisor side. As attractive as it is to have people paying you to expand your business, the fact remains that every time you sell a franchise you are putting your company’s honor, reputation, and financial future into the hands of someone who you can’t control, who has no reason to like you or protect your company beyond the need to recover their investment. This can lead to improperly maintained locations that give your company an unwanted reputation for slovenly management and unsanitary conditions, public relations disasters that impact the performance of other franchisees miles or time-zones away, or human resources atrocities so absurd that they get you mocked by scruffy bloggers all over the globe…

I picked up the original story from the local television station in Houston, but in case you missed it, there are reports of a Popeye’s franchise demanding that the shift leader in one of their stores pay back the money that was stolen during an armed robbery because it was her fault the registers had enough money in them to be worth stealing. When the woman in question refused, saying that she’d already been robbed at gunpoint and couldn’t have afforded to replace the money anyway, she was fired. This would have been bad enough, but it turns out that the fired employee is a mother of three children who is currently pregnant with a fourth – and now facing unemployment in addition to her other problems…

Now, I don’t know enough about employment conditions in Houston to comment on whether firing someone because your company was robbed of less than $400 makes any financial sense. Typically, we assume that recruitment/replacement costs for supervisory personnel run between one-third and one-half of the first year’s salary, which in this case would mean somewhere between $5,000 and $10,000 for a supervisor in the $8 to $10 per hour range; possibly much more than that. Unless there are so many employed first-tier managers in the Houston area that a replacement can literally be found sitting in the restaurant itself, this was already an asinine decision on the part of the business. But once the story got out things became even worse for both the franchisee and the company…

There’s only one Popeye’s location within a fifty-mile radius of my office, and I already don’t go there because I would literally have to drive past dozens of other fast-food restaurants to get there. And I know that our local franchise has absolutely nothing to do with Z&H Foods in Houston, except for the fact that both companies purchased a franchise to make and sell fried chicken and biscuits. But even knowing that, I feel rather more negatively toward Popeye’s in general than I did before I read this story, and even more so since the franchisor in this story is refusing to comment and just dumping all responsibility for this fiasco on the local franchisee. Just imagine how much worse that could get if everyone who sees this story, on the air or on the Internet, has the same reaction…

Still want to go into a franchised business model? I can wait while you think it over…

Stealing Time

Readers of this blog (assuming I have readers) who live in the Western US or other parts of the world may not be familiar with the Jimmy John’s chain of sandwich shops. The company is a Subway competitor, with two major differences: the quality of their food is much higher and their business model is based almost entirely on take-out and delivery service. In fact, many of the locations in Central Michigan don’t even have seating; if you purchase food there you will have to find somewhere else to eat it. I’ve been a regular customer ever since we first encountered the chain, during the first week we were here in Lansing. It really annoyed me to find out that some of the franchises are being sued for stealing time from their employees – especially considering the wider implications of that crime…

You can pick up the story here if you’d like, but the basic concept is simple enough – and much more common in the US than I wish it was. Two of the Jimmy John’s franchises are being sued by former employers who claim that the franchise owners routinely required them to work “off the clock” without pay or other compensation. In practice, this has the effect of lowering the minimum wage, and therefore the payroll expenses experienced by the business. Employees are given the choice of working for less money or being fired, and during bad economic times they may need the job badly enough to put up with such demands…

It’s unusual to encounter this kind of chicanery in franchised businesses, since most franchisors have strict rules against the practice and in some cases can fine the franchise holder or even revoke their franchise agreement for doing so. People are likely to assume that the company is complicit in such exploitive practices even if they do realize that the locations in question are independently owned and operated; if they don’t realize the locations are franchised they will just assume that the corporation is screwing its own employees out of their minimum wages. Given that both the pay and the working conditions offered to fast food employees is already legendarily bad, no company wants to be associated with making things worse…

What may be getting lost in the shouting here, and is certainly being ignored in the highly politicized debates over a higher minimum wage, is the public impact of these wages and working conditions – and specifically, the fact that an increasing number of minimum wage workers are having to rely on public assistance just to stay alive. Fast-food companies – or quick-serve restaurants, to give them their industry title – have some of the highest operating margins of any major enterprise, and certainly have one of the highest ratios of how much the CEO makes relative to the average employee. Unfortunately, they are doing so by paying their employees starvation wages (sometimes literally) and dumping the cost onto the taxpayers; effectively a massive public subsidy for fast-food makers at your expense…

Now, I’m not going to suggest that every employee working far too hard for minimum wage is the head of a household trying to support multiple dependants on effectively no pay. Many of these positions are held by students, part-time workers, secondary wage earners in their households, and other who are not being driven to the edge just to provide a corporate executive with a larger bonus. My point here is that the fact that this is happening to anyone is an outrage, and the fact that these companies are effectively stealing your tax dollars as much as they are from the employees makes it a public disgrace. Requiring highly-paid employees working under exempt status to work more than 40 hours a week may be unethical and counter-productive, but at least it’s legal. Stealing time from your employees is Grand Larceny, plain and simple, and the people doing it should be charged as common thieves and prosecuted accordingly…

Dumping these expenses onto the public is effectively stealing the money that would otherwise be used for fire departments, police protection, public health, education and other vital services – and I don’t even have a name for that crime. But anyone who can accept a $20 million or $30 million salary while making his or her employees live on public assistance (or starve to death) needs to re-evaluate his or her personal values, assuming they still have any. And all of the people who are dead-set against raising the minimum wage should probably consider exactly who is paying for that public assistance, because it certainly isn’t the companies doing the exploiting – or shall we just call it stealing and have done with it? A crime by any other name…

Flying Cheese

Over the years, I have seen a number of very odd food concepts taken to market with varying results. I can still recall the infamous “Space Food Sticks” marketed during the early 1970s, when everyone I hung out with was a least a little caught up in the hype surrounding the Apollo missions. I’ve seen dozens of things covered with batter and deep-fried, from cheese and hot dogs to Twinkies and Snickers bars. I’ve seen chocolate brushed, sprayed and coated on products where chocolate should never go. I’ve seen foods that explode when they come into contact with your mouth, hot sauce so potent it can literally cause tissue damage, and packaged vegan brownies that were complete unchanged by being stepped on and then molded back into shape (fortunately, the plastic wrapper didn’t break). But I don’t think I’ve seen a concept so completely insane, and yet so appealing, as the idea of a flying grilled cheese sandwich…

I picked up the story from the Huffington Post article about them, but you can visit the company’s own website here if you want to. There isn’t a lot of information about them online, but the basic idea is you pay for a sandwich online (it’s $5) and then go to a location marked with an “X” on a street corner – the location of which will be revealed to you after you pay your money. A short time later a small orange parachute with a sandwich attached will float gently down from the sky, where you can grab it. The company says that if you sandwich gets caught on something on the way down, or otherwise fails to show up, they will “probably” make you another one – but it’s hard to imagine any entrepreneur losing public relations, let alone potential repeat customers, by failing to replace product that happens to get stuck in a tree…

It’s not clear how serious these people are about the company, which they call Jafflechutes – a “jaffle” is Australian slang for a grilled cheese, and they drop them via parachute, hence Jafflechutes – but assuming a customer base with sufficient whimsy there’s no reason this couldn’t work. All you would need is a kitchen located in the upper floors of a building somewhere with a significant population density (the North American location they’re talking about expanding into is New York City, naturally) and a city government which is prepared to be lenient about litter from miss-delivered sandwiches. The business model isn’t functionally different from any other quick-service restaurant with an unusual delivery method, and we have already seen other gravity-based systems (e.g. chutes, elevators, rolling trays) used in this role. There are even restaurants already in operation where all ordering and payment transactions are handled via touch screen on the tabletop, and you have no personal interaction with the employees…

Personally, I was a little disappointed when I saw the details of the operation in the online articles. When I saw the headline I had envisioned a fleet of drone aircraft, possibly akin to the quadracopter drones Amazon is supposedly looking into using for a delivery fleet, soaring over the rooftops of a major city and then releasing sandwiches from an internal cargo bay when they reach the specified GPS coordinates. And once that technology is up and running, I can’t see any reason why the unmanned, jet-propelled, laser-guided, self-chilling beer keg that the Aussies (and the U.S. Marines) have been asking for over the last few decades wouldn’t be possible…

For now, I suppose we should probably just keep watching the skies. Although, if you find yourself standing on an otherwise unexplained “X” on the pavement, you might also want to keep a glass of milk or a cup of tomato soup handy…

And Now From the Chicken Wars…

After last week’s post on the Burger Wars I wasn’t really planning an update on anything else – but then the Internet intervened (as the Internet is wont to do) and I found a similar article about the two leading quick-serve restaurants that focus on chicken. This article is far less specific in terms of cause and effect, and I can’t help wondering if the practical aspects of the case are getting lost in all of the political controversy surrounding at least one of the companies involved…

According to a second article off of the Bloomberg/BusinessWeek site, Chick-fil-A is now outperforming KFC to become the most successful company in their segment of the quick-serve industry. Despite having only about 40% of the stores (1,775 compared to 4,491), Chick-fil-A sales for 2013 exceeded KFC ($5 billion versus $4.22 billion). Given the relative sizes of the chains, that means that the average Chick-fil-A location is making over three times what the average KFC location brings in (about $3.2 million per year versus $938,000 per year). And while I do not have current figures for marketing expenditures, the last set of numbers I saw indicated that KFC was spending considerably more on advertising, both per store and aggregate, than the competition…

Why exactly this should be is not explained in the Bloomberg article, and industry sources are not clear either. Most of the ink about Chick-fil-A in the last few years has been political, not business-related, and has focused on the CEO’s support for right-wing and fundamentalist organizations, notably those opposed to same-sex marriage. I had noted in a previous post that this did not make sense as a business strategy – a given customer’s money has exactly the same value regardless of his or her position on any political issue, and intentionally alienating what appears to be about half of the people in this country seems unwise at best. However, I also speculated about the value of such moves in terms of free advertising, increased support from customers of similar (e.g. highly conservative or reactionary) political leanings and increased brand awareness – all of which seems much less comical given this information…

Now, it is certainly possible that the relative sales data indicates a decline in the fortunes of KFC as much as it does the rise of their competition. Certainly, the public perception of KFC’s product and service quality has dropped in recent years, and at the same time perception of the brand has become less prestigious and more associated with lower-income demographics. There have also been issues with some of the recent product offerings from KFC, including the bowl-based meals (which are considered some of the least healthy options available in the industry), “Value Menu” combinations that do not offer any particular value or utility, and repeated reports of chicken heads, feet and other generally inedible items being served to customers…

Part of the problem would appear to be that while KFC have become more and more committed to a low-cost leadership strategy, Chick-fil-A has been pursuing a differentiation strategy based on the quality of both their food and service and positioning itself as a slightly more prestigious product. Chick-fil-A has also been more successful in introducing an expanded product line, notably including a surprisingly successful breakfast menu. If you consider it from a strategic standpoint, it seems as though Chick-fil-A has intentionally attacked KFC in all of the areas where the competing firm was the weakest – and unless I am badly mistaken, that’s probably what they set out to do…

As noted in last week’s Burger Wars post, none of these effects is anything short of predictable. Once KFC began to favor low cost over product quality or brand development they became vulnerable to an opponent who would be perceived as offering a better product, and their virtual abandonment of the breakfast market effective gave that share away to anyone else in their market who could take it. What I find even more remarkable is that if these statistics are accurate, the comparatively tiny number of Chick-fil-A locations are also outperforming the McDonald’s locations on a revenue-per-store basis. And since Chick-fil-A has little or no presence in almost half of the United States, things will almost certainly get worse as they progress with their current expansion plans…

It's enough to make you wonder how well the company would be doing if it hadn't decided to intentionally alienate half of the country...

I’ve Seen This Before…

I wasn’t really planning on an update to my last post, or anything else about the ongoing burger wars, but over the weekend I kept seeing the new Taco Bell ad (the one with a bunch of guys who are actually named Ronald McDonald eating the new Taco Bell breakfast products) in heavy rotation, and I could not shake the feeling that I had seen this somewhere before. Of course, I am getting older, and given my ongoing memory problems there are going to be times when a sensation of déjà vu is unavoidable. But then I saw an article on the AdWeek site which points out that this has, in fact, been done before…

You can pick up the original article here, if you want to, but the details are simple enough. About 12 years ago, one of the other quick-serve hamburger chains called Jack-in-the-Box pulled exactly the same stunt, finding a guy whose legal name was Ronald MacDonald and getting him to eat and express appreciation for their new burger product on camera. The Jack-in-the-Box people apparently selected a guy who uses the alternate spelling of MacDonald on purpose, just in case their larger competitor decided to give them grief about the campaign, but their ad agency admits that they also chose that particular Ronald because he performed well on the video. Other than that, though, the commercial uses almost exactly the same gimmick in almost exactly the same way…

Whether or not this will have any effect on the ad campaign – or on sales of the new products it is trying to promote – remains to be seen, of course. As of this writing the Jack-in-the-Box chain is only operating in 19 of the states, and with only 2,200 locations it’s still relatively small when compared to Taco Bell’s 6,500 locations, let alone McDonald’s. People in many parts of the country may never have seen a Jack-in-the-Box restaurant (the Company’s website lists the nearest one to East Lansing as being 210 miles away in Indiana), or even seen one of its ads. And even if they have, people don’t necessarily devote that much time to memorizing ads run by (relatively) small fast-food chains a decade or more ago. There’s also the issue that Taco Bell itself has a history of running with unconventional advertising…

Probably the best-remembered Taco Bell campaign is the Talking Chihuahua series of the late 1990s, although the late 1980s “Make a Run for the Border” campaign is still widely satirized. My personal favorite will always be the company’s stunt in 2001 when the Mir space station was falling out of orbit, and the company put up a 40’ by 40’ target in the South Pacific and broadcast that if any part of the falling station hit the target they would give a free taco to every person in America. With a history like that it’s hard to imagine that anyone would get that worked up about this new Ronald McDonald campaign, even if it is ripping off an earlier commercial made by a rival company. A much bigger issue is how McDonald’s will respond to the Company’s new breakfast products…

As I noted in my last post, the off-peak sales have been a key factor in making the McDonald’s locations more profitable than any of their competitors, and while it will take time for any new product to gain traction, let alone non-traditional offerings like a taco made out of a waffle, it seems highly likely that they will have to do something in reply to this new challenge. There is no question that McDonald’s represents an entrenched competitor with an established customer base and a large network of locations already optimized to sell breakfast products during the relevant business hours; the question is whether that will be enough to carry the day. Or, more to the point, perhaps, how will they respond to the challenge? Because if the history of the Burger Wars has taught us anything, it’s that McDonald’s is unlikely to just sit still for this…

Dispatches from the Burger Wars

In my travels around the US and occasionally outside of it I have encountered a number of quick-serve restaurants, mainly burger stands, that are attempting to knock off McDonald’s as the top company in that industry, and I have noticed one element they all appear to have in common: they are all failing miserably. This is not to suggest that the competition isn’t successful in its own right, or that all of the other companies in this industry are poorly run or unprofitable, because clearly this is not the case. But a recent article on the Bloomberg/Business Week site points out that in 2012 (the last year for which there is complete data) the average McDonald’s location made $2.6 million in revenue, while the second-best company, Burger King, averaged only $1.2 million per location. And despite the website’s attempt to make the reasons behind this seem dark, complex or arcane, they are for the most part depressingly predictable…

First off, there’s the difference in advertising budgets. If this story is accurate, McDonald’s is spending about $16.30 in advertising for each dollar Burger King spends, and that doesn’t even consider any of the other expenses involved in the Marketing function. Based on the relative success of the advertising and promotional programs alone, we can say with some confidence that McDonald’s has a superior understanding of their primary customer demographics and better forward planning for future products and programs. But even assuming that all of the other functions have parity in terms of budget, it does not seem far-fetched that a company outspending its largest competitor by a factor of 16.3 to 1 in advertising budget would be more successful in selling consumer products. Unfortunately, things just go downhill from there…

According to Bloomberg, McDonald’s is outselling the competition in off-peak times, such as breakfast and mid-afternoon snacks, because of its superior product mix. Industry efforts to duplicate the famous McDonald’s breakfast menu have not been completely successful, and the introduction of viable snack foods (like the successful wrap products) and a competitive line of coffee products (good enough to cause trouble even for Starbucks in some markets) has made the company far more profitable. Even worse, the attempts by industry competitors to duplicate the success of the infamous Happy Meal ™ have met with indifferent results, which not only increases the number of families doing business with McDonald’s but helps the company develop life-long customers beginning at preschool age. At this point the popularity of the product has made it the premiere choice for movie tie-in promotions, which is just reinforcing the success of what was already the leading program in the industry…

Now, it should be obvious that none of these products would work nearly so well if the company offering them was not able to execute the programs correctly, and the same article goes on to point out that in addition to the well-known food quality and consistency measures, McDonald’s also surpasses the competition in terms of operational efficiency. This may not seem like a big issue, but consider the difference that a faster drive-through operation can make to the over-all profitability of a quick-serve restaurant, given that some locations will obtain upwards of 65% of their sales through the drive-through window. Now consider that McDonald’s averages almost 5% faster on drive-through orders over the competition. I don’t have current numbers on walk-up speeds, but the last time I looked the company’s edge was even higher there, given the efficiency of their kitchen designs and the high degree of automation in use in many of the restaurants…

I call this to your attention because most of the competitors I have studied tend to attribute their lower performance, or inability to compete with the industry leader on equal terms, to one or more of the advantages an entrenched opponent who already occupies the top spot will enjoy. And, in fairness, there are any number of ways in which McDonald’s does command specific advantages that derive from their market position, from improved name recognition to better negotiating terms when obtaining movie-tie in promotions. But if these statistics are correct, then the key factors that explain the firm’s dominance are simple enough to explain on a single web page – or a 732-word blog post…

Overcoming those advantages would be another matter entirely. But that’s a post for another day…

Have You Met Us?

The question of how far out of touch the average CEO is from his or her front-line personnel isn’t exactly a new one; people have been talking about this since the early days of the Industrial Revolution – which is to say, for as long as there have been CEOs or large corporations for them to be CEO of. Not surprisingly, this has become a more contentious topic as the gap in salary between senior management and line personnel has widened. In the days when the CEO made a dozen times what a line supervisor took home, and perhaps 30 times what the lowest-level worker made, it might have seemed reasonable to assume that the employees in question had at least some common frame of reference, but with CEO salaries ranging as high as thousands of times what the workers make it has become hard to imagine why an executive being paid hundreds of millions a year would know anything about the lives of minimum-wage employees. None of which makes the CEO of CKE Restaurants saying that his company’s fast food managers prefer “stature” to overtime pay any less fatuous, of course…

If you missed it you can pick up the story of HuffingtonPost, but the basic facts are clear enough. Andy Puzder, the CEO of the company that owns the Hardee’s and Carl’s Jr. chains not only said it, but took to the Op-Ed page of the Wall Street Journal to proclaim that the Obama Administration’s efforts to raise the salary threshold above which supervisory personnel can be declared “Exempt” and forced to work overtime for no additional compensation would constitute “demoting entry-level managers to glorified crew members by replacing their incentive to get results with an incentive to log more hours.” He then goes on to say that “What they lose in overtime pay they gain in the stature and sense of accomplishment that comes from being a salaried manager.” It’s enough to make you question whether Mr. Puzder has ever served as a supervisor in a fast-food operation, and if so, on what planet that restaurant was located…

Most of the people who work minimum-wage jobs in America are not doing so for the sense of personal achievement and/or self-sufficiency to be had by being gainfully employed; they’re doing so in order to pay the rent, feed their family and avoid becoming homeless. By the same token, most first-line supervisors are not performing their basic management responsibilities because of stature or a sense of accomplishment; they’re doing it because of (marginally) better working conditions and (slightly) higher pay. In fact, it’s not at all uncommon for senior hourly personnel to refuse promotion because it would result in an effectively lower salary – especially in situations where their hourly position is protected by a collective bargaining agreement and the lowest tier of management is not. Or, perhaps more to the point, when the actual work duties are almost identical but the position requires longer hours at lower pay and no overtime – which is commonly the case in both retail and food service…

Now, I’m not suggesting that Mr. Puzder doesn’t feel a sense of accomplishment and enjoy his stature as CEO; with a salary listed at $4.48 million and thousands of people who must comply with his orders or risk immediate termination. I’m not even suggesting that Mr. Puzder doesn’t work long hours himself; I’m quite sure that being the CEO of a company that size does require a fair number of long working days. But I have worked as the first-level supervisor in both of those industries, and I can tell you that there is all of the difference in the world between working in a beautiful, clean executive office where your largest hazard is a paper cut and working in a hot, greasy fast-food kitchen where your biggest hazards are third-degree burns from boiling oil and being shot to death in an armed robbery. Especially when the pay differential is between $2,153.84 per hour for the CEO and $9.81 per hour for the fast-food supervisor…

Without additional research I can’t be certain if Mr. Puzder was ever a fast-food restaurant employee or not. But I’d really like to ask him if he has ever met any…

Take a Stand

One of the great controversies of our time has arisen again, and no matter which side of the issue you find yourself supporting, you may be quite sure that sooner or later this divisive issue will confront you in one of its many forms. So I ask you, dear reader (assuming I have readers), to consider for yourself and make your own decision: is tofu actually evil, or merely unpleasant?

The matter has taken on an unprecedented urgency in this time, because just last month Chipotle announced that they will begin carrying tofu as one of the protein options on their menu at all 1,572 of their restaurants nationwide. This entire bean-curd menace began just one year ago, in only seven test markets, and initially met a great deal of resistance from customers dedicated to the idea of burritos with meat in them, but has gradually spread to nearly half of the company’s locations. And while the company has offered a number of (effectively) vegetarian options for years (usually including some combination of rice, beans, cheese and fajita-style vegetables) this is the first time they have actually stooped to the dreaded bean curd. The question all Americans must now consider is whether this is a good thing or a bad thing…

I kid, of course, but for anyone associated with the company this is a non-trivial issue. On the one hand, it seems reasonable for the company to attempt to accommodate people who can’t or won’t eat animal products by making a true vegetarian option available on their menu. Cheese is inherently an animal-based product, of course, being made from cow’s (or goat’s or occasionally buffalo’s) milk, but many common types of cheese are also made with rennet, which is a collection of enzymes taken from the stomach of a cow or calf. Tofu, on the other hand, is generally not made with any animal products or by-products, and neither are the rice or black beans sold by Chipotle as it stands. In theory, this should increase the company’s potential customer base, both directly in terms of additional people they will be able to serve, and also indirectly, in the case of parties containing one or more vegetarian diners who will now be able to go to Chipotle together…

On the down side – well, there is very little risk involved. The number of people who are allergic to tofu does not appear to be any greater than those affected by any other food allergy, and anyone who isn’t allergic to the stuff can just not order it. It is possible that there will be some investment required in additional kitchen equipment and/or modifications to the restaurants’ food assembly lines so that they can handle the new ingredient, as well as some additional expense in setting up procurement and distribution of the new ingredient, but given the gradual introduction of the product it seems likely that the company has worked out any bugs that might have appeared in their system. Which only leaves the philosophical problem I mentioned at the beginning of this post…

Personally, I’ve never give a fetid dingo’s kidney about what other people think of my eating habits. As long as they mind their own business and let me get on with mine, we can always get along – and anybody who actually has problems with somebody eating a nice steak burrito (or, for that matter, one which contains only tofu and beans and rice) should probably not be allowed to eat out in public in the first place. So while it is possible that PETA and the American Cattleman’s Association might be headed for a showdown sometime soon over a tortilla-wrapped entre, it seems much more likely that both sides will just pay their money, eat their lunch, and go back to fighting over something more important…

Remember, though: if a range war breaks out in your local Chipotle restaurant, you heard it here first…

Baking Up Value

Let’s keep the product development and value theme going for another post and consider a new development in one of America’s most over-developed consumer products: the common hamburger. If you’ve been watching the news over the past few years – and I hope you are; it would be sad if the only place you get your news is from me – you’ve probably seen stories about the various crimes against nutrition and occasionally sanity perpetrated in the guise of specialty hamburgers. There’s a 5,000-calorie chili cheeseburger called the Landfill Burger from Max & Erma’s; various “challenge” burgers ranging from two or three pounds up to the 123-pound “Main Event” offered by various pubs; even the 9-patty tower of madness called the T-Rex Burger offered at selected locations by Wendy’s. But until now there have been very few examples that offered additional value for the customer without costing the company extra in terms of materials, labor, reputation or the occasional product liability lawsuit…

A story off the NBC News site brings us word of a new product being tested by Wendy’s for possibly deployment later this summer: an upscale burger with a pretzel-style bun. The company has been introducing a number of new products as they attempt to maintain parity with McDonald’s and Burger King in rolling out new food items, and it appears that Wendy’s is trying to position itself as slightly more upscale than the competition, much the way Target did in its three-cornered fight with Wal-Mart and K-Mart. Pretzel-style breads and rolls have been gaining popularity in several markets over the past few years, and if Wendy’s can get this product to market before the competition duplicates it they should be able to market the sandwich as an “upgrade” over more common burgers, and therefore worth paying a premium to obtain. What makes this concept so brilliant is that the value created for the customer isn’t going to cost the company much of anything…

Pretzel-style buns are somewhat more complex to produce than conventional bread rolls, but not that much more complex or expensive. Certainly not compared to the costs associated with adding extra cheeses, sauces, or worst of all additional meats to the sandwich as most previous “premium” burger products have done. But this addition will produce a tangible change in both the appearance and taste of the final product – an improvement, in fact, to anyone who likes pretzels – at very minimal cost to create and effectively no additional cost to deploy (the new buns can be produced at the same bakery, shipped in the same trucks, heated in the same warmers, and so on). All they need now is an effective ad campaign, and they should be off to the races…

Even if this does work it’s difficult to say how long any advantage the company gains will last. Pretzel buns are potentially valuable and are currently rare, at least in the fast food industry, but they aren’t particularly difficult to imitate. If Wendy’s is successful with their new product, I would fully expect to see other companies offering pretzel burgers (imitation) or some other kind of non-tradition hamburger bun (substitution) as soon as the impact of the value added becomes clear. On the other hand, McDonald’s has been selling the “McRib” product off and on for at least twenty-five years now, and Burger King only just brought out their equivalent sandwich this spring. This could get interesting…

Not as They Appear

From time to time in this space I like to bring you updates on products that aren’t quite what they appear to be – low-priced products that are not actually economical for the user, time-savers that are actually time-sinks, medications that don’t cure what they were developed to cure, and such. I also enjoy bringing you gross-out stories about food items that are supposed to be healthy (and aren’t) or one that are supposed to be “acceptably” bad for your health and aren’t. But it is a rare and wondrous day when I find something that fits into both of these categories…

An article on the AP website today tells the story of the new breakfast product from Dunkin’ Donuts: The Glazed Donut Breakfast Sandwich. As far as I can make out from the linked article, it’s less hype than it is a glazed donut cut in half and used as a bun for a fried egg and bacon – rather like the breakfast sandwich available at most fast-food franchises, except that this one is housed on a doughnut instead of a bagel, muffin or biscuit…

This isn’t the first sandwich product to be offered using something other than bread, of course; we’ve seen everything from the infamous “Double-Down” from KFC (a sandwich using two pieces of chicken in place of a bun) to various restaurants and food stands around the country using two jelly doughnuts in place of a bun. But this is the first national donut chain to attempt such a thing, and all of the people who usually start expressing outrage at about this point in the release of a quick-serve industry food product that isn’t specifically healthy are raising cane as usual. What makes this story really interesting is that this time they’re wrong…

A quick check of the nutrition information on this new product reveals that the Glazed Donut Breakfast Sandwich has 360 calories per serving, which stacks up well against McDonald’s products like the Sausage McMuffin with Egg (450), the Bacon, Egg and Cheese Biscuit (460) or the Bacon, Egg and Cheese Bagel (630). In fact, this new product is actually 30 calories lower than the company’s own turkey sausage breakfast sandwich, which was specifically developed to appeal to people attempting to eat healthy – or at least select something healthier than a donut for breakfast…

Now, I’m not saying that there is anything wrong with putting an egg and bacon into any particular bakery product and calling it a breakfast sandwich. At this point in a life during which I have been forced to learn more about nutrition than I ever really wanted to know, I can honestly say that I can’t see anything wrong with anything you want to eat that conforms to your nutritional needs and does not contribute to any particular health problem. The Glazed Donut Breakfast Sandwich itself is no more problematic than many other breakfast offerings, and almost certainly offers more protein than you would get from just scarfing down glazed donuts on their own. One could even argue that if it keeps you from eating a large number of regular donuts (or other fried and/or sugary foods) in the morning it could actually be a superior choice…

Or, as I have often said in other contexts, the map is not the terrain – and you can’t judge a book by its glazed, sugary cover. Sometimes, things are not as they appear to be…

Burger Wars III: Escalation

When I was younger a “guilty pleasure” was going to McDonald’s and eating five or six cheeseburgers at a sitting – or, if you like, one and a half of the “Double Big Mac” products you sometimes see on the Value Menu nowadays. I’ve never been a particular fan of the company, and the regular cheeseburger isn’t even my favorite product on their menu – it hasn’t been more than a light snack for me since 1975 or so, or at least a single one hasn’t been. But there’s something wonderfully decadent about just eating as much of something as you want to, especially if it’s something that was originally supposed to be an entree. And with cheeseburgers and double cheeseburgers now some of the cheapest products in fast food, thanks to the infamous Value Menu, this custom seems to have become widely popular – to the point where it is interfering with healthier fare…

According to an article from the Associated Press by way of the ABC News site, McDonald’s has announced that it is dropping several of its high-end products from the current menu, including the line of Angus burgers, the line of Chicken Select sandwiches, and something called the Fruit & Walnut salad. Although the company hasn’t explicitly said why they are taking this step, the industry expects cited in the article note that sales of the Angus line and other top-end products have been soft for some time, in large part due to the availability of cheaper products off the Value Menu program. By itself this probably isn’t terribly significant – McDonald’s has been experimenting with various new products since the 1960s, and has rotated things in and out of their menu as purchasing trends developed, just like any other food service company. What makes is event interesting from a strategic point of view is that the trend does not appear to be limited to McDonald’s…

I had written in this space a couple of years ago about the deteriorating relationship between many of the Burger King franchise holders and the parent company over control issues such as selection of advertising campaigns and menu selection. One of the key areas of contention, in fact, was Burger King Corporate demanding that all of the franchisees offer a value menu that was cheaper than the competition (primarily McDonalds) at prices too low to include any profit. This was great for the company – it allowed them to claim (correctly) that their outlets offered more product for less money than the competition – but problematic for the franchisees, who were having to bear all of the attendant costs. If this campaign had merely been a loss-leader strategy – using the unprofitably low prices to increase customer traffic and develop sales for other products – it might have worked, and the franchise holders might have accepted it. But with the rise of customers eating nothing but low-margin Value Menu products this idea no longer made any sense…

It’s still too early to say if there will be any long-term fallout from these maneuvers. Fast-food and quick-service customers are still changing their buying patterns, and there is no way to tell if healthier or cheaper product offerings will gain the lead, let alone hold onto one. But as any undergraduate business student can tell you, price wars rarely end well for any of the combatants, and sometimes they end badly for the customers as well. If all of the major fast-food chains end up offering nothing but low-cost products (a dollar or so) and “healthy” products like the “Snack Wraps” it is possible that they will end up fighting over a smaller and smaller set of customers, while the people who like sandwiches that actually taste like hamburgers (or real food in general) gravitate to other parts of the industry or out of the quick-serve sector altogether…

This is a Strategy?

I was wandering around online this week and I ran across an interesting line of speculation about the ongoing Chick-Fil-A fracas, and whether it’s all as random – and psychotic – as it looks. If you’ve been out of touch for the last few years you may not know that this national fast-food chicken chain has a long history of supporting anti-gay political groups, and specifically those opposing same-sex marriage, or that earlier this month Chick-Fil-A’s CEO came out and defended this affiliation, saying that these are the core beliefs of his organization. This has resulted in all of the public outcry you would expect from the left side of the political spectrum, and there are now protests and boycotts being proposed all over the country (or at least those parts of it that have operating Chick-Fil-A locations in them)…

This doesn’t seem like it would be good for business, does it? The exact number of people in this country who identify as part of the group Chick-Fil-A is antagonizing is unclear, as they are still highly stigmatized in some areas, but something like half of all Americans are in favor of full civil rights for members of the GLBT community, if not for same-sex marriage itself, and alienating that much of your customer base seems unwise. Even worse, people in the younger demographic groups – who make up a disproportionately large amount of the fast-food customer base – are more likely to support the GLBT rights and same-sex marriage cause than older people in otherwise similar populations, making this public and political stance that much more likely to damage sales. But what if a change in demographic support was the whole point of the exercise?

Over the past week, as folks on the left have been organizing protests and calling for boycotts, there has been a response from right-wing political leaders who are jumping on this situation to curry support from their ultra-conservative supporters. We’ve already seen former (and possibly current) presidential candidates calling for a “Day of Appreciation” for Chick-Fil-A and urging like-minded people to support the company by purchasing more product. As a direct result, people who wouldn’t be caught dead in a Chick-Fil-A under any normal conditions are showing up, having their pictures taken, tweeting and blogging about the situation. Meanwhile, millions of people who had never heard of Chick-Fil-A before (and have certainly never eaten there) are talking about the company and debating what they think they’re doing…

Now, it may seem a bit far-fetched to believe that the company had intended such an effect all along; it certainly assumes a much greater understanding of psychology (and a great deal more intestinal fortitude) than we normally associate with the fast-food industry. But competition in that industry has been intensifying in recent years, leading to such unexpected moves as Taco Bell attempting to introduce upscale entre choices, McDonald’s offering salads and high-end coffee products, and KFC trying to promote itself as health food. And while it may be optimistic of the company to assume that they will receive more business from new ultra-conservative supporters than they lose from more liberal folks, very few companies in this country have ever lost money betting on small-minded, reactionary bigotry…

The question of whether all publicity is good publicity remains in dispute, but it’s hard to deny that in this case Chick-Fil-A has gotten millions of people to pay attention to them for the price of a press conference. Is this a devious strategy to increase sales, a Machiavellian publicity stunt, or just the political ranting of a group of people who don’t seem to understand that sometimes asserting your personal beliefs (however sincerely) is bad for business? What do you think?

Apples and Corn Chips

I was reading some of the news stories about the success of the new “Doritos Locos Tacos” product from Taco Bell and reflecting that there were at least two things worth considering about this report – depending on how one happens to feel about fast-food operations, product development, and possibly business reporting or history. There may even be a few points here about expert knowledge, really bad logical fallacies and demographic research, which struck me as being quite a lot to say about a food product so preposterous on the face of it that it could be (and occasionally was) mistaken for a Saturday Night Live skit when it first appeared…

First of all, there’s the performance of the product. The “Doritos Locos Tacos” are actually just Taco Bell’s standard crunchy taco product served in a flavored shell – in this case, the flavoring used on Frito-Lay’s popular “Nacho Cheese Doritos” corn chip product. It’s one of those concepts that is so simple it probably took a genius to think of it in the first place, and it has resulted in the company’s most successful product in its 50-year history: Taco Bell is claiming to have sold over 100 million of the things in the first ten weeks they were on the market – or roughly as many hamburgers as McDonald’s sold in the first 18 years they were in operation, according to the OrangeCounty (California) Register. Surprisingly, this isn’t quite as impressive as it sounds…

Consider the difference between the two firms during the periods indicated: Taco Bell has been in operation for fifty years, and has been a franchised fast-food operation for most of them; at the time of product launch three months ago it had more than 6,000 locations world-wide, serving more than 2 billion customers a year and bringing in somewhere on the order of $1.9 billion in revenue annually. By contrast, in 1958 there were only 34 McDonald’s locations extant, all of them in the United States; Ray Kroc had started the franchise/expansion program that would build it into the dominant brand we know today, but comparing the two organizations is silly, and so is the fact that the Register is just printing that claim without fact-checking anything. Whether the fact that Taco Bell is headquartered in the same community as the Register (and purchases a lot of advertising space in the paper) had anything to do with this report is something you’ll have to judge for yourself, of course…

I think the most important point to this story, though, is the reaction I noted in a lot of people when the product was first tested last year. People in either of the primary demographics (Doritos or Taco Bell) went for it like the proverbial pack of rats, while everyone outside the primary demographics (most people over 30, in fact) thought it was the stupidest (and most nauseating) idea they had heard in years. Fortunately for their profitability, the senior management team at Taco Bell decided to try the concept out on customers in the appropriate demographic groups and probably realized that they had a winner on their hands before the first focus-group study was half-finished. If the product development team has just dismissed the thing as “something I’d never want to eat” they’d have missed out on selling 100 million products at $1.29, which by my count is $129 million in sales on one product alone, in just ten weeks…

That sort of failure of imagination – making decisions about a product based on what you want, rather than what your customers actually want – is sometimes called the “I Am The World” fallacy, and it remains one of the easiest ways to destroy a good company that doesn’t involve hiring your brother in law to run your operations. So the next time somebody brings you an idea that sounds like a stoner made it up late at night after a trip to the fast-food stand, you might want to hear them out before you make any decisions…

Or at least run the thing past a panel of probable customers…

The King is Dead…

Okay, not really, but according to a story that ran today on CNN Money, Burger King is no longer the number two hamburger/fast food chain; Wendy’s has finally overtaken them. The numbers themselves shouldn’t worry any of the Burger King stockholders just yet – the company trails Wendy’s by $8.4 billion to $8.5 billion – which may be roughly $100 million in absolute terms, but is only 1.2% in relative terms. What is rather more disturbing (for the Burger King stockholders, at least) is that Wendy’s is getting this higher performance while operating 18% fewer restaurants – 5,900 units compared with Burger King’s 7,200. If I were one of the stockholders I’d definitely want to know why my company was making less money despite having 1,300 more outlets. But then, I’d also want to know who authorized some of the dumber marketing programs at Burger King – and why those individuals haven’t been fired yet…

We’ve spoken in this space about the “Freaky King” ads (television spots featuring a character with an oversize, strange-looking plastic head piece), the “Freaky King” pillowcases and tie-in merchandise, the occasionally obscene print ads, and the fact that the complete incompetence exhibited by some of the Burger King crews (including the one closest to our house) don’t appear to be helping the public perception of Burger King offering an inferior product. From a business standpoint, the most absurd factor of all has to be the outrageous treatment of the franchise holders by the parent company, considering that the success of those franchised locations – and the quality of their products and operations – is critical to the company’s overall success. Until now, however, it was only unfounded speculation on my part that all of this exceptional idiocy was going to bring down the company…

Now, I don’t mean to suggest that the decline of Burger King (and the rise of its competition) is due entirely to management shortcomings. The increasing influence of burger competitors, such as the Jimmy John’s sandwich chain, the upscale Chipotle and Qdoba Mexican-themed fast-food restaurants, and the unholy trinity of Taco Bell, KFC and Pizza Hut have all taken their toll on the hamburger sub-industry, and new entrants such as Five Guys have fragmented the market even further. And there’s no question that high fuel costs, increasing demands for food purity and ecologically responsible farming, and the general decline of the economy have all contributed to the company’s problems over the past few years. But all of these factors make it more important for Burger King to work with their franchise holders, build good relationships with their customers, and avoid advertising campaigns that offend (or creep out) huge sections of their potential customer base, rather than less – and the company does not seem to have grasped this fact…

The fact is, at the end of the day, no one is going to bail out a failing fast-food corporation. If Burger King continues to strong-arm franchise holders into selling double cheeseburgers for below cost, running “Freaky King” spots after the franchise holders (and the public) have begged them not to, and otherwise alienating the people they need to stay in business, they’re likely to vanish off of the American scene as if they were never here, and no one will notice because regional players like Jack-in-the-Box and Carl’s Jr. will take over their share of market, and we’ll all get to eat Jumbo Jacks, Ultimate Cheeseburgers, and Western Bacon Cheeseburgers instead…

You know what, forget I said anything…

Junk Food Strategy

If you’ve spent any time watching television over the past few decades you’re probably already aware of the artificially shaped and formed pork sandwich from McDonald’s called the “McRib”; if you are particularly fond of unusual junk food and have no sense of your personal safety you may even have eaten one. There’s a widely held belief that McDonald’s uses the product as a means of drawing attention to – or at least increasing interest in – some of its more obscure venues and menu items by rotating where and when the McRib is available each year. The fact that the sandwich is popular, but only available for limited periods, means that whenever it appears local aficionados will turn out in large numbers. But now it appears that the company may have a broader (and more sinister) use for the product as well…

There’s a story on the Dayton Daily News website this week that claims McDonald’s uses the McRib to prevent competing organizations from developing their own “pork-based” sandwich offerings. Since the arrival of a McRib sales window will (at least in theory) both drown out attempts to publicize a competing product and also draw the attention of pork consumers to the local McDonald’s franchise, any other pork sandwich product is likely to go unnoticed during such a period. The company need only maintain the sales window until the competitor gives up and stops offering the (presumably unnoticed) pork products, which it can do, since “limited time only” does not specify how limited a time. The larger question is whether the company would actually bother with such tactics – and if that matters in any way…

Certainly, if a national competitor (Burger King, or Quiznos) were to launch any new product that gained enough popularity to draw customers away from McDonald’s, this could negatively impact the company’s sales, and make it worthwhile for them to counter such a launch. But unless the competitor was also using a “limited time” and “selected locations” promotional strategy, McDonald’s would have to counter the new product in markets across the country, and maintain that presence indefinitely, both of which would undermine their existing McRib strategy. Such a tactic could be used with great effectiveness against a regional company, or to counter a competitor’s own limited time promotion, but as a strategic-level approach it seems unlikely. However, there’s no question that McDonald’s could do it, and no guarantee that they wouldn’t attempt it just because it seems illogical…

On the other side of the issue, it seems probable that McDonald’s will use any means that is both legal and ethical to build and maintain market share – since it’s hard to imagine why any company run by sane people wouldn’t do so. Offering menu items that have greater appeal to local customers than those available from the competition is a standard tactic, and McDonald’s already offers different menu configurations in different parts of the world (I noticed Japanese-style noodles in a franchise in Hawaii, for example, and some European McDonald’s serve alcohol). If pork sandwiches, fresh pastry or calamari become key to a specific market, it’s not unreasonable to expect that McDonald’s will find some way of using that consumer preference to their advantage. The more immediate issue is what the competition should do about it…

McDonald’s isn’t invincible; competing firms have taken them on at the local, regional and even (occasionally) national levels and won. In this case, a competitor will need to come up with a product that tastes better, sells for less, or offers greater value in some other fashion than the McRib. If you can do that, you could even counter-program the McRib; offering it in markets where a McRib sales window has just opened, and effectively beating McDonalds at their own game – assuming that they use such a strategy in the first place. The real trick will be inventing a new product with the potential to do this in the first place…

Guy Walks Into a Coffee House…

I don’t actually have a joke to go with this line, but I’m starting to think I might have to write one, since recent developments in the coffee house industry and the quick-service restaurant (QSR) industry are starting to make it clear that something very strange is going on. First, Starbucks started offering sandwiches and salads at lunch time; then they added breakfast fare for people who want a fast meal but want something better to drink than mass-produced fast-food restaurant coffee. McDonald’s fought back with their highly successful “McCafe” line of coffee products, offering coffee house quality at reduced prices and improved production times. Starbucks introduced a larger sized iced tea beverage, and McDonald’s retaliated by lowering their large drink size to $1 indefinitely. Now McDonald’s is striking at the heart of the coffee house business model, and it remains to be seen if it will work – or what Starbuck’s can do to reply…

There have been a number of stories about this in the press, but you can catch the USA Today Online story if you want to. Basically, the idea is that McDonald’s is refitting all of its 14,000 U.S. locations to be more comfortable, and to include a separate counter area and seating area for people who just want to order coffee products – effectively, a coffee house within a McDonald’s. It’s an intriguing idea all by itself, but when you add in the recent changes to their menu (to include “healthier” options, although hardly anyone would call them “healthy”) this practically constitutes a repositioning of the entire company and its brand. For decades, the knock against McDonald’s was that they valued neither the health (considering the menu) nor the comfort (given the steel and hard plastic furniture) of their customers; with all aspects of the operation designed to process as many people (and as much money) as possible in the smallest amount of time. If this story is correct, however, this may no longer be the case…

Naturally, there are going to be complications in pulling off such a rebranding. McDonald’s key demographic is still families with small children, and while the sort of young adults who hang out in coffee house operations is a strong market for them, you can’t really have a coffee house environment in a setting where there are large numbers of small children running around, jumping off of things, bouncing off of things, and shrieking in that way they do. It’s certainly true that if this image change works it could enable McDonald’s to not only do better against Starbucks, but also to engage all of the higher-level QSR operations (the authors linked above suggest Chipotle and Panera Bread, but anything else in that class would also possible) for a larger share of a more lucrative market than they have traditionally controlled. At the very least, it would give them a clear selling point over Burger King and Wendy’s, and might help to cement their leadership in their original segment; it’s also an awful risk…

All of these actions are expensive (the authors estimate the project at $1 billion), and there is no guarantee that it will improve their market share or per-unit income in the slightest. Past experience with McDonald’s attempting to put more attractive-looking stores in more upscale areas suggests that people have some difficulty taking an upscale McDonald’s that seriously, and there’s certainly no indication that people will start hanging out in one the way they do in coffee houses, even if the McDonald’s location does offer Wi-Fi, comfortable seating, or coffee house style beverages. And while it is unlikely that Starbuck’s will start selling burgers, it’s certainly possible that they will attempt their own changes in format or product – and the other QSR burger stands almost certainly will…

It’s possible that none of these things will happen, of course; that the latest development in the burger wars will never be more than a passing fad. But I’m going to go ahead and write that joke anyway. Let’s see: “A guy walks into a coffee house and says ‘Give me three double cheeseburgers with everything…’”

Has Anybody Seen Ronald Lately?

Back when we were growing up, most of the companies that marketed directly to a youth audience (including my younger self) had advertising mascots, and most of them had jingles as well. I can still remember the original Burger King – a short, completely animated character whose shticks included a hamburger-shaped helicopter and a castle decorated in a pleasant hamburger motif – and the original Jack in the Box mascot, Pioneer Pete (from Pioneer Chicken), the dancing hamburger and taco from Pup ‘N Taco, a number of Taco Bell mascots including the talking dog, the animated Happy Star from Carl’s Jr., the original Colonel Sanders (I have no idea if it was the real Harlan Sanders or not), the original (animated) Bob’s Big Boy, and many others. I can also remember interim versions of many of these, including a live-action Burger King (an actor in costume and makeup) who had his own theme song and an animated Colonel Sanders. But the biggest of them all was always Ronald McDonald, who had his own theme song and supporting cast at least 40 years ago…

Today, however, it seems like Ronald’s theme song should be “Have You Seen Me Lately?” by Counting Crows, since no one has. In an article on their website, Bloomberg speculates that the company is making less use of the character in their advertising in a bid to both go upscale and refocus their brand onto more adult products. Recent McDonald’s menu changes have emphasized salads and relatively healthy food options, and the McCafe line of upscale coffee products has been credited by the company for creating revenue growth over six of the last seven quarters. At the same time, the company has been shifting towards advertising that supports these new target demographics – which is hardly surprising, if you think about it…

Personally, I can’t help speculating that the shift in advertising focus may reflect the cultural impact of previous campaigns and the company’s current market position as much as it does their new demographic targets. In America, it isn’t generally necessary to encourage children to ask for McDonald’s food products; nearly all cases, children already know what McDonald’s is offering and will already beg their parents for it, simply because they have been conditioned to believe that this is the best-tasting (or at least most-enjoyable) food possible. It will probably be necessary to keep marketing to children, at least to maintain that position, but today’s younger customers are the children and grandchildren (and in some cases, great-grandchildren) of McDonald’s customers, and that market position is not likely to change any time soon. But to establish themselves as a purveyor of adult favorites and a destination for adults, the company will need to develop an entirely new public imagine, and a clown-like spokesman probably won’t help with that…

Of course, Ronald isn’t actually going anywhere. The company still uses him in a lot of different iconography, including charitable (and PR) initiatives like the Ronald McDonald House charities. And we can probably count on seeing him turn up from time to time in youth-oriented advertising of various sorts, as the company uses him to retain their brand recognition among children and pre-teens. What we probably won’t see is a “gritty re-boot” of the character, to appeal to teenagers and young adults, since that would interfere with the primary uses already listed – which is unfortunate, I think. Imagine the marketing potential for Ronald as a superhero, fighting crime with his amazing hamburger-oriented powers; or as an adventurer, discovering the Tomb of the Lost Carbohydrate with his mad exploring skills. On the other hand, given what Burger King did with their smart, funny animated King (who would have fit in with most Warner Brothers cartoon characters) in creating the current, excessively creepy “freaky King,” maybe it’s just as well…

So if you’re out there in America somewhere and you pass a guy in a yellow clown costume and a red wig trying to sell hamburgers to people who have become jaded with live-action advertising mascots, be nice to him. He helped make this country what it is today, good and bad – and I think we can all count on seeing him again soon…