McDonald’s may recently have struggled to lure customers, but it still does far
ID: 2730849 • Letter: M
Question
McDonald’s may recently have struggled to lure customers, but it still does far more business at each location than rival burger chains. The average McDonald’s restaurant in the U.S. drew $2.6 million in revenue last year. Average sales for No. 2 chain Burger King: $1.2 million, according to data from its largest franchisee, Carrols Restaurant Group.
What accounts for this more-than-a-million gap? “Everything from marketing and site selection to product initiatives and franchisee selection have been historical factors,” said Nick Setyan, vice president in charge of equity research at Wedbush Securities, in an e-mail. Here are four factors that drive higher sales volumes at McDonald’s:
1. McDonald’s gets more customers during off-peak hours. Look no further than the strength of its breakfast business relative that of Burger King, says Darren Tristano, executive vice president at restaurant consultancy Technomic. Egg McMuffin is part of the fast-food vocabulary in a way Burger King can’t match. And beverage and snack offerings such as McCafe and wraps have helped increase McDonald’s sales between meals. The dramatic impact from off-peak business explains why chains like Taco Bell are entering the battle for morning customers, while others such as Starbucks are seeking more afternoon and evening business.
2. The power of the Happy Meal. McDonald’s has the largest share of kids meal sales in the fast-food industry and gets about 10 percent of total sales from Happy Meals, the most commonly advertised (PDF) child-oriented fast-food item on television. Burger King, meanwhile, is still trying to win back “parties with kids and seniors and women,” said Josh Kobza, Burger King’s chief financial officer, at a conference last year. One way to do that: “We got rid of the creepy king character that tended to scare away women and children.”
3. McDonald’s has an edge on efficiency. Despite recent operational challenges at McDonald’s, which have slowed down service, it is still more efficient. Its drive-through service can handle more cars at peak times, Tristano says, and McDonald’s restaurants are adding a third service window to get customers through even faster. The average service time at McDonald’s drive-throughs is 189.49 seconds, compared to 198.48 at Burger King, according to QSR Magazine. Drive-through service is important: Burger King franchisee Carrols gets 65 percent of its sales from the drive-through.
4. More marketing dollars. McDonald’s spends a lot more on marketing than competitors, as Tristano points out. Its advertising costs in 2012 were $787.5 million vs. Burger King’s $48.3 million, and the gap widened last year when Burger King itself spent only a few million on advertising in order to focus on equipment updates. In its 10-K submission, Burger King said it expects to spend less on advertising until 2016; the company declined to comment for this story.
1. McDonald's uses a cost leadership strategy. However, what spects of a differentiation strategy does this stroy suggest Mc'Donald's uses? And what core strenghts could Burger King use to catch up with McDonald's?
Explanation / Answer
Cost leadership strategy: Strategy used by businesses to create a low cost of operation within their niche. The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of others in the same industry. It is a concept developed by Michael Porter
Differentiation Strategy: Product differentiation is a marketing strategy that businesses use to distinguish a product from similar offerings on the market. Usually employed where a firm has clear competitive advantages, and can sustain an expensive advertising campaign. The differentiation strategy the business uses must target a segment of the market and deliver the message that the product is positively different from all other similar products available.
Suggestions:
a) Creats Value: When McDonald uses a differentiation strategy that focuses on the cost value of the product versus other similar products on the market, it creates a perceived value among consumers and potential customers.
b) Non-Price Competition:The product differentiation strategy also allows McDonalds to compete in areas other than price. For example, McDonalds may differentiate its burgers from other brands like burger King in terms of taste and quality.
c) Brand Loyalty: A successful product differentiation strategy creates brand loyalty among customers. The company must continue to deliver quality or value to consumers to maintain customer loyalty.
d) No Perceived Substitute:A product differentiation strategy that focuses on the quality and design of the product may create the perception that there's no substitute available on the market.
Core Strenghts Burger King Use to catch up with Mcdonald's:
a) Concentrate on customers during off-peak hours by launching new products for breakfast and other snacks. This helps Burger King to make new customers at a Off peak hours also.
b) Concentrate of serving the whole society that is to adults, kids, women, older/senior ones. Burger king must provde meals for everyone including kids.
c) Improve the average serving time by employing efficient employees & equipments, and by use of extra windows for serving the customer.
d) Focus more on advetisement and other market publicities. Invest more in the advertising field to increase awaireness about the Burger King.