McDonald’s: Competing Against Fast Casual Dining MKTG 277/777 Jesús Alcázar, Christopher Kuo, Danielle Levite, Brenda Nguyen, Erik Pump

Background (Brenda) Current market situation (US) Survey McDonald's: perception vs. reality Recommendation for McDonald's Compete for more market share o Product o Price o Place o Promotion Limitations Agenda

Fast Food: Food that is prepared and served quickly at inexpensive restaurants with preheated or precooked ingredients Fast Casual: Hybrids of quick service and casual dining that provide counter service and offer more customized and freshly prepared dishes than traditional fast-food Market Trends: From Fast Food to Fast Casual

Fast Food Market o Worth $162 billion o 2.2% growth in sales revenue Market Trends: From Fast Food to Fast Casual Burger Industry Worth $40 billion Fast Casual Market o Worth $22 billion o 5.7% growth in sales revenue Fast casual burger segment o 16% growth Fast food burger segment o 3.2% growth

McDonald's (U.S.): SWOT Analysis Strengths o Brand name o Locations o Advertising o Price Weaknesses o Unhealthy image o Low quality food o Bad stigma Opportunities o Expansion o Promotions o Healthy trends Threats o Intense competition o Health regulations o More health-conscious consumers

Five Guys Simple, casual and diner environment 792% growth since 2006 (32.8% in 2011 alone) o Nearest competitor is Jimmy John's, which grew 241% over the same period Entire chain surpassed $1 billion in revenues in 2012 Worth an estimated $500 million

Measuring Reality v. Perceptions of McDonalds

Primary Research Survey Asked respondents to rank McDonald’s, Five Guys, Wendy’s and Smashburger on: o Healthiness, Menu Variety, Price, Quality, and Taste on a scale of “very poor” to “excellent” At end, asked respondents to rank each characteristic from “not important at all” to “very important”

Characteristics Healthiness Menu Variety Price Quality Taste

CharacteristicLevel of Importance Taste94% Quality82% Price65% Healthiness61% Menu Variety43%

McDonald’s Double Quarter Pounder with Cheese $4.49 Five Guy’s Cheeseburger (Double Patty) $6.39 Price

McDonald’s Large Fries $2.49 Regular Soda (Medium) $1.59 Total before tax: $8.57 Five Guy’s Large Fries $4.99 Regular Soda $2.29 Total before tax: 13.67

McDonald’s Perceived Price o 82% of survey respondents cite it as very cheap or cheap Five Guy’s Perceived Price o 78% of survey respondents cite it as moderate or expensive Do Perceptions Match Characteristics?

McDonald’s Double Quarter Pounder with Cheese 750 Calories 43g Fat 19g Saturated Fat 1280mg Sodium Five Guy’s Cheeseburger (Double Patty) 840 Calories 55g Fat 26.5g Saturated Fat 1050mg Sodium Healthiness

McDonald’s Large Fries 154 g 500 Calories 25g Fat 3.5g Saturated Fat 350mg Sodium Five Guy’s Large Fries 567g 1314 Calories 57g Fat 10g Saturated Fat 1327mg Sodium

McDonald’s Perceived Healthiness o 61% rated as “very poor” o 25% rated as “poor” Five Guy’s Perceived Healthiness o 31% rated as “very poor” o 39% rated as “poor” Do Perceptions Match Characteristics?

ProcessedFresh Excellent Very Poor Quality Taste

Summary of Primary Research Severely lagging behind on perceptions for primary characteristics for the customers: taste and quality Advantage on price Also advantage on healthiness HOWEVER perceptions are unfavorable and customers do not realize

RECOMMENDATIONS

Recommendation – Summary Product o Create a higher quality burger Price o More expensive Promotion o Change their campaigns – not only fast food, but also clean restaurants, healthy food, including premium options Place o Same places, change decoration RECOMMENDATION

PRODUCT McDonald’s Focuses on Standardized Meals

Highly standardized across the traditional menu Customer familiarity with products PRODUCT Current McDonald’s Burger Selection

Salt, pepper, pickles, minced onions, ketchup, mustard PRODUCT

Current Five Guys Burger Selection (Little) Hamburger (Little) Cheeseburger (Little) Bacon Burger (Little) Bacon Cheeseburger PRODUCT

Five Guys: Customized Product PRODUCT

“Five Guys uses 80/20 ground chuck-high quality ground beef containing only steer and heifer meat, which does not include any cow meat or fatty trimmings. We do not use ammoniated procedures to treat our ground beef.” Five Guys: High Quality Beef PRODUCT

Recommendations – Product Introduce single new product Fully customizable o Bun (Egg vs. White vs. Wheat) o Size (1/3 Pound vs. 1/2 Pound) o Toppings Higher quality beef PRODUCT

Recommendations – Price PRICE Burgers currently in the range of $0.99 to $4.99 Five Guys currently in the range of $3.39 to $6.99 New product with an increased price ($ $6.50) Free toppings

New Product in a Distinct Part of Menu PROMOTION

McDonalds is one of the most prevalent fast food advertisers: television, radio, newspaper ads, billboards and signage, sponsors sporting events, etc. McDonalds spends over $2 billion each year on advertisements --> has sufficient resources to allocate towards extensive advertising campaigns PROMOTION McDonald’s Advertising

Comparison – Five Guys Advertising Five Guys does not undertake rapid advertising and shuns national advertising campaigns, which they find fake, and instead rely on word of mouth. As a result, a considerable portion of the target market is completely unaware of their existence In contrast, the giant competitors of Five Guys (McDonalds) carry out intense all-media advertising campaigns which help them create enough attention so as to generate the desired consumer base PROMOTION

McDonalds should take advantage of Five Guys' weakness → Lack of Advertising -> Low Consumer Awareness It should use its advertising advantage to promote a new premium menu and focus on an enjoyable dining-in experience Recommendations – McDonald’s Advertising PROMOTION

Q: What is portrayed in the commercial? Q: What is noticeably left out? --> Speed, efficiency, fast-paced McDonald’s Commercials PROMOTION

Fast-casual restaurant that successfully creates an environment that speedily serves specialty foods at moderate prices They resemble sit-down diners that act as hang-out spots for friends and family seeking cheaper prices Their simple and clean decor enables them to be perceived as a higher-end restaurant with quality food and reasonable prices PLACE Comparison – Five Guys

Recommendations – Place McDonalds has 13,382 stores in the U.S. They should capitalize on their extensive real estate Redirect the use of the funds towards purchasing quality meat and remodeling their current stores to enhance customer experience → striving for a more fast-casual environment PLACE

Limitations / Risks Economic Legal Other o Brand