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GLOBAL 2016: Value rises as brands improve food and customer experience

Digital ordering shifts category to e-commerce

The fast food category improved 11 percent in brand value following a 4 percent rise a year ago. Leading brands increased mobile ordering, improved food quality and preparation, and continued to address health concerns. They also promoted value and benefited from the recovering economies of North America and Europe.


McDonald’s experienced turnaround effects under its new CEO, with same-store sales up for the first time in two years. Both Burger King and Tim Horton’s achieved strong same-store growth in their first year under the same corporate entity, Restaurant Brands International. However, the strength of the U.S. dollar hurt the financial results for many US-based chains with extensive overseas locations; for example, 22,000 of McDonald’s 36,000 restaurants are located outside the USA.
Price remained paramount in fast food, but, in an effort to drive up the average ticket and improve store traffic, the burger chains evolved their dollar menus to promote value for money with larger portion sizes. Chains also attempted to drive traffic with added day parts and menu items as well as expanded beverage offerings. McDonald’s continued its all-day breakfast menu.
Digital ordering and payment, where Starbucks excels, provided a particular advantage for the pizza chains competing in a fragmented sector where independents still dominated, at least in the United States. Several brand leaders, including Chipotle, McDonald’s, Panera and Starbucks experimented with delivery, either with their own programs or third parties.
Food freshness remained a core issue. But in an ironic twist, the commitment to serve food made with fresh ingredients, locally sourced rather than mass-produced, resulted in food safety issues for Chipotle, a brand that had successfully built meaningful difference around its commitment to delivering food that is fresh and healthy.
Menu and health
To meet consumer concerns about health and quality, Wendy’s updated its key point of differentiation, that its hamburger meat is fresh, not frozen. When Wendy’s launched its focus on taste, patty size and freshness in 1984, it differentiated with the slogan, “Where’s the beef?” Today, customers ask, “Where’s the beef… come from?” motivating the chain to tell a more complicated local sourcing story.
To improve the taste of its food, McDonald’s changed several cooking practices, including the way it sears burgers and toasts buns. It also switched from margarine to butter in preparing its Egg McMuffin sandwiches. As part of its strategy to offer fewer but more impactful menu items, Burger King introduced grilled hot dogs at over 7,000 US locations. Tim Horton’s added menu items while emphasizing its strength in coffee.
Despite better economic conditions, the chains resisted raising prices and instead created value packages intended to drive customer traffic without excessive discounting and margin erosion. McDonald’s started with a “McPick 2 for $2” offer and later switched to a more premium “McPick 2 for $5.” Wendy’s offered a “4 for $4” and Burger King sold a “5 for $4,” which came with a dessert.
Menu additions and improvements, such as cold brewed coffee and breakfast sandwiches, also drove Starbucks sales. The chain experimented with an evening offering of beer, wine and snacks, giving customers another reason to spend time at the “Third Place”, the Starbucks term for its restaurants as a physical location and state of mind people visit between home and work.
More mobile                                                        
Starbucks added mobile ordering to all of its company-owned U.S. locations and introduced mobile in Canada and the UK. The company planned to add features to its mobile app, including suggested pairings intended to boost incremental sales. By July 2015, mobile payments accounted for one-fifth of all Starbucks transactions.
Domino’s Pizza, which views itself as an e-commerce company, gained around half of its sales online. Customers could even order by texting a pizza emoji. Its digital strategy is part of the reason that Domino’s same-store U.S. sales rebounded from negative numbers during the 2008 recession to 12 percent growth in 2015.
A Panera restaurant upgrade program called Panera 2.0 included digital ordering as part of a package of food and operations initiatives aimed at improving customer experience. Many major brands recruited high-level technology specialists as omni-channel became a critical factor in fast food, as it is in retail.
In China, international brands faced local Chinese operators empowered by mobile home delivery apps affiliated with the powerful Chinese Internet brands Baidu, Alibaba and Tencent. Also in China, Yum! Brands, which owns KFC, Pizza Hut and Taco Bell and operates 43,000 restaurants around the world, announced plans to separate its China business into a distinct company.
After rapid expansion in China, opening almost 7,200 units in 30 years, KFC was damaged by a food safety scandal, the effects of which were compounded by the rise of local competitors. Establishing two separate companies would potentially enable Yum! Brands to grow rapidly in the rest of the world as it recovers in China.
Building and sustaining strong brands
Along with making operational improvements, companies addressed consumer social concerns, particularly about animal welfare issues, such as chickens being raised in cage-free environments. Chains also addressed wages and other issues related to fair treatment of employees. Starbucks associated its brand with contentious debates in the U.S. about race relations and guns.
In an affirmation of its coffee credentials, Starbucks planned to open a 20,000-square-foot store in a trendy downtown Manhattan neighborhood. It was expected to be an example of retail theater, similar to the Starbucks Reserve Roastery & Tasting Room in its home market of Seattle, where massive industrial coffee-roasting equipment shares the stage with counters of Starbucks foods and branded tchotchkes. In China, Starbucks continue to aggressively open stores and establish a coffee culture aimed especially at young people.
Starbucks also entered a partnership with the music platform Spotify to shift its long-time brand association with music to digital. Starbucks locations have had a soundtrack for over 20 years and sold related CDs until recently. In perhaps its ultimate expression of brand self-confidence, Starbucks planned to open a store in Italy, the nation whose coffee retail heritage inspired CEO Howard Schultz to purchase the brand in 1985.
Another strong brand, Chipotle, tried to regain the confidence of consumers after a series of food safety issues that occurred because the chain relied on local food suppliers, which complicated and left some gaps in supply chain quality control. Subsequently, Chipotle changed some food production processes, including centralization of beef cooking, and worked to reassure and attract consumers.
Chipotle launched a price-driven marketing campaign that included free burrito and buy- one-get-one-free offers. However, some stores sales declined over 14 percent in the last quarter of 2015, reflecting consumer disappointment, which was echoed in social media. Subway, the sandwich chain that first carved out freshness as its competitive niche, contended with the death of its founder and marketing challenges.

Brand Building Action Points

1. Be healthy.
Consumers are seriously concerned about the healthiness of what they eat, and they are sensitive to thoughtless, vague or misleading marketing descriptors.
2. Be honest.
Be straightforward in communicating about food. Generalizations such as “natural” or “natural ingredients” may raise more questions than they answer. Consumers, especially millennials, are looking for honesty.
3. Be socially responsible.
Value meals and all-day breakfast may drive traffic. But increasingly customers also wonder about where the beef was sourced and whether the eggs came from chickens raised responsibly. And if the parents do not ask about sourcing, the kids might.
4. Be digital.
Customers expect to be able to order and pay with their smartphone, which means that fast food not only needs to be healthier and of better quality, it needs to be even faster.