McDonald’s Public Enemy #1 – Wendy’s
By George Anderson
A memo sent to McDonald’s franchisees pretty much says it all. Wendy’s “is the face of the enemy over the next 18 months.”
While Wendy’s has struggled recently, the number one fast food chain sees its smaller rival making a push into the breakfast business as well as targeting younger consumers and the chicken sandwich market for growth. All are areas where McDonald’s sees growth potential.
Additionally, Wendy’s recent introduction of value meal items moved it into new territory in direct competition with McDonald’s and its other chief rival Burger King.
Wendy’s incoming chairman, James Pickett, said last week, “While there is no quick fix, we intend to regain positive momentum by improving our restaurant operations, driving sales by launching new, innovative products our customers want, and focusing on more effective marketing.”
McDonald’s has promised franchisees it will reinforce efforts to stave off any competition.
On the perceived threat to its breakfast business, the company said, “We have to get aggressive on advertising, products and operations at breakfast.”
McDonald’s is looking to gain the same presence in the chicken sandwich market that it has in other product categories. The fast food chain estimates it can achieve an additional $1 billion in sales with chicken items over the next three years.
In the correspondence to its franchisees, McDonald’s acknowledged that it currently trails Wendy’s and Burger King in the premium chicken sandwich segment. The company’s lack of success, according to the franchisee correspondence, is tied to the perception that the other chains offer higher quality products. McDonald’s pledged to reverse that perception and become “best in class in chicken.”
Moderator’s Comment: What are your thoughts on McDonald’s planned response to the perceived competitive threat from
Wendy’s? Do retailers and others risk losing their focus on their own customers and operations by framing marketing, pricing and product responses based on what competitors are
doing? – George Anderson – Moderator
Let’s see now. Big successful giant challenges smaller (apparently weaker) competitor to a fight. McDonald’s must remember that it only takes one small stone in the hands of a skilled opponent to bring a giant down. Wendy’s has gone through some trying times but it wasn’t due to their products or service. They got the “finger” from some jerks trying to take advantage of our litigious society and have endured the meddling of Wall Street shysters in their boardroom. I don’t think a little street fight is going to scare them much. Many suppliers will see this as an opportunity to bring Wendy’s some polished stones to use against the Giant.
McDonald’s seems to have made many refinements in recent years, mainly with new menu additions that target incremental customers. However, fast food is a mature and saturated category, so they must keep their eye on the competition, notice who may be stealing market share, and when appropriate, learn from them. If their research has determined that their competitors’ chicken sandwiches are better, it is time for an upgrade.
To the possible detriment of my health, I eat at fast food restaurants almost everyday. I rarely go to Wendy’s because (1) they aren’t open for breakfast, and (2) they are in an awkward market position. Here’s what I mean by the second point: when I want really good fast food, any time of the day, I go to Hardee’s or Arby’s. Hardee’s, in particular, has reinvented themselves the best, and now has the highest quality products of all the majors.
I go to McDonald’s when I’m in a hurry and want to save money, as you can get more food for your dollars there than at Hardee’s or Arby’s. Where does that leave Wendy’s? Odd man out. Their 99 cent value menu products are not as good as McDonald’s $1 menu, but their full price sandwiches are inferior to Hardee’s. I can never come up with a compelling reason to go to Wendy’s, unless I want chili.
As for McDonald’s taking the defensive position versus Wendy’s, I agree that the market leader should set the pace and not just react to what others are doing, but at the same time, many big companies have gone under or lost their way, because they thought they were so big and successful that they didn’t have to worry about their competitors. McDonald’s needs to find that point of balance, blazing new trails but not forgetting to look in the rearview mirror from time to time to make sure they aren’t about to be passed.
The McDonald’s memo just seems like bluster. Not many people would go 10 minutes out their way to eat at most fast food joints. None have menu items that are out of this world. This is no surprise: they all have similar costs and procedures and positioning and personnel. I doubt that most franchisees of any brand are stupid. They know their restaurant is similar to many others, regardless of brand. A brilliant strategy would include something that makes the place so special that (1) people would drive 10 minutes out of their way to get there and (2) the “specialness” could not be copied in 6 weeks by any other fast food chain. Yes, everyone has his/her favorites. But I see no giant of achievement towering over all the rest.
This is an indication of how far the culture at McD’s has slipped from the peak it enjoyed in the late 70’s and 80’s. A dominant market leader does not define itself in terms of who and what the competition is. A dominant market leader is focused on meeting high value consumer needs in an efficient manner. McD’s used to be a market leader. Right now, they act like a post-peak organization, using fear of competitive action to stimulate business behavior.
Warning signs! When Coke defines its efforts as defensive against Pepsi, it’s lost the edge. Reactivity in the face of aggressive action is never a sustainable proposition. Organizations succeed by staying focused on a dynamic and responsive strategy and continually questioning and improving on the core competencies to deliver against that strategy. Reacting to a competitor is NOT a strategy.
There is nothing wrong with seeing that you’ve missed something and your competition got there first. If there’s room and you can do it, leveraging that competitive behavior into progressive action of your own is sound business thinking. Seeing that you’ve missed a trend, analyzing how you can interpret it now in a different, sustainable and higher value way for your customer…yes! Unfortunately, that is not what appears to be happening.
Theoretically, it would seem that focusing “all” of your attention on your own customers and operations would keep your products and services in close correspondence to your market. But in practice this doesn’t really work, as far as we have seen: competitors inevitably offer an innovation you hadn’t thought of, the market responds to your competitors in positive ways that you could not predict, etc. Besides, the list of organizations that we have studied who truly stay close to their customers is shorter than a page; competitors’ ideas and successes can be great feedback on your own organization’s weaknesses in serving your market.
It appears to be a common idea that the traditional financial metrics — year-to-year revenue growth, market share, margins, etc. — are evidence of an organization’s intrinsic strength. Yet our careful analysis has shown that these metrics indicate COMPARATIVE strength: how the organization fits its business environment. A company with great metrics means that it is performing well given the current conditions of its competitors, market, and regulatory and overall economic environment. Bring in a competitor with much better processes, and the company’s metrics will suddenly degrade. See Xerox, 1984. The enduring cycle of revolving leadership in the fast-food industry leads me to speculate that these organizations are very similar to each other, and all somewhat weak. Heresy!
Tough job for McDonald’s. Sending a message to local stores may alert them to the problem. However, where are the premium sandwiches that will roll out? What is the quality of the breakfast items and how will they compete with Wendy’s products? Where are the premium chicken sandwiches? Will corporate have strong promotions appealing to the right market? The local stores understand that there is a war – they need to keep their current market and win more customers. What is corporate doing to help them in the war and when will the new products and promotions roll out?
This is one discussion where I wanted to see what everyone else wrote first. I was following the thread of thought until Mr. Flowers said he liked Hardee’s and Arby’s better and then had to spend 10 minutes recovering from shock. But to each his own.
As for McDonald’s, what made them successful were cheeseburgers, fries and Coke…..get’m in and get’m out. Just keep focusing on doing that like you have been for the past 50 years. So Wendy’s is going to serve breakfast. Just how good could it be? None of the fast food chains does breakfast very well. However, I will give McDonald’s points for their new coffee….at least until the free coffee on Monday promotion stops. I think if McDonald’s focuses too much on $4 chicken sandwiches instead of the basics, then they will lose playing Wendy’s game. There is a reason McDonald’s has 4-5 cash registers and Wendy’s has one. There is a reason why soccer moms haul SUVs full of kids to McDonald’s and not Wendy’s. There is a reason McDonald’s is still #1. And, most important, there is a reason why the franchisee chose to invest his life savings in a McDonald’s franchise and not Wendy’s. Just remember those reasons.
10 minutes recovering from shock that someone might like Arby’s or Hardee’s more than McDonald’s? Really? When was the last time you ate at these 3 restaurants and compared them? Arby’s has always had better quality than most fast food chains, and Hardee’s, since being acquired by Carl Jr’s, has completely reinvented itself. Their burgers are black angus beef. You won’t find that under the golden arches. Honestly, I don’t know of anyone who would choose McDonald’s over Hardee’s, (except for parents taking kids to the PlayPlace) unless price is a factor. McDonald’s is cheaper, so you can get more for your money, and that is a big consideration for many people. Ask college students and the many members of the working poor what they think of McDonald’s, and you will be told that it’s cheap, and the food “isn’t too bad.” Not exactly a glowing endorsement.