Fast-food marketers won't be filling up their cash registers any time soon. Same-store sales in this industry are disappointingly flat. Profits have plummeted, and the future no longer appears rosy, with estimated annual growth at only 2%. Despite the money and brainpower marketers are investing, solutions to the sluggish growth dilemma are frustratingly elusive.
And this isn't just a problem that smaller local or regional chains face, many of which might be struggling to compete with market dominators like McDonald's. It's a vexing issue that has stymied the dominant pacesetter chains as well.
McDonald's has seen its stock prices rise and fall in response to largely uncontrollable sales fluctuations. Partly because of this, the company has announced a new advertising effort focused on winning back customers who have "lost that loving feeling." McDonald's unveiled its new "I'm Lovin' It" commercials in September, signaling what the company hopes will be a fresh direction and an emphasis on "connecting" with its customers.
KFC, clearly disappointed with the inability of its multimillion-dollar advertising campaign to position it as different from "fast food," has announced an agency review. According to the vice chairman of its National Council and Advertising Co Op, "Sales have been rotten since the first of the year." And KFC's chief marketing officer abruptly left "to pursue a new career direction."
And it's not just the fastest of the fast-food marketers who are feeling the pain of declining sales momentum. Casual restaurant chains are facing these same problems. California Pizza Kitchen lowered its 2003 earnings estimates due to a drop in its average store sales and announced that its president had resigned. In response to weak sales and increased competition, Red Lobster has announced a new menu and a new $60 million ad campaign aimed at creating a new brand identity for the chain.
There's something happening here . . .
Some clear lessons are emerging from all of this. First, what it takes to initially bring people in the door -- or up to the drive-through window -- may be quite different from what it takes to bring them back. And the real goal is to bring them back not just once or twice, but on a weekly or even daily basis. KFC had initially trumpeted the growth in sales resulting from its Jason Alexander ad campaign, which proclaimed the difference between KFC and a "fast-food" experience. An intriguing promise, perhaps -- but it's a promise that demands consistent execution. (See "Promises, Promises" in See Also.) Intriguing promises are of no lasting value if the company cannot deliver.
In addition, despite the speed with which fast-food and casual-restaurant marketers have turned to new ad agencies and fresh ad campaigns to remedy their sales ills -- or to new leaders in the boardroom, including new CEOs and chief global marketing officers -- it takes a lot more than a new slogan to keep customers engaged. So, what does it take to create a lasting customer bond?
Recognizing that it takes more than just new advertising, McDonald's is now testing an impressive array of potential fixes. It is experimenting with new black plastic plates in Rockford, Illinois, table delivery in Raleigh, North Carolina, and free Internet access in New York. It's testing new food items regionally, ranging from a feta cheese salad in the United Kingdom to "Croque McDo" sandwiches in France. In San Francisco, it's testing Wi-Fi access; in Brazil, AOL access. New ordering kiosks and vending machines are in the works. McDonald's is even looking at streamlined stores with limited menus, and it's exploring new crew uniforms with white shirts and ties.
Surely at least one of these proposed solutions will prove to be the home run that will bring the company back to category leadership and earn Wall Street applause -- but maybe not.
The Fifth P
Gallup Organization research has discovered where McDonald's and other fast-food chains must place their emphasis. (See "The Power of the Fifth P" and "When Will They Ever Learn?" in See Also.) It's not just advertising, shiny black plates, new ordering kiosks, or even new sandwich items -- not if they're seeking a continuing customer relationship that endures well beyond a single visit.
When Gallup researchers looked at what makes a fast-food chain's customers want to hurry back, they found that food, price, ads, or even a convenient location weren't the paramount factors. While these elements were clearly important in the marketing mix, they were insufficient to differentiate one hamburger chain from another. In most cases, these elements represent offerings that are quickly duplicated or imitated by competitors.
What does keep fast-food customers hungry to return? The number one factor, Gallup found, was people. It was the associates and managers -- the folks who contribute greatly to creating the store experience and who, through their daily contact with customers, either support or refute the intended brand positioning. It's not what the employees wear but how they interact with customers that can turn simple transactions into enduring relationships.
To its credit, McDonald's is also testing new training programs that use e-learning to teach store employees how to handle customer problems. That may well be an important first step, but the key to relationship building isn't just "trained" employees -- it's engaged employees. (See "Managing Your Human Sigma" in See Also.) Engaged employees foster engaged customers. And, until McDonald's begins to harness the relationship-building strength that dwells somewhere within its 413,000 employees, the fast-good giant won't realize the full potential of its new products, redesigned stores, and expedited ordering systems. As Northwestern's Tom Collinger observed when discussing McDonald's new ad campaign, "It sets up an expectation that if overwhelmingly they did not deliver on, it could be devastating." Advertising Age columnist Jonah Bloom put it more bluntly: "Convincing the patrons that they or the McDonald's staff are 'lovin' it' is going to require employees to look and feel more engaged than they do now."
Some industry analysts and consultants have been watching the trials and tribulations of fast-food marketers, contrasting them sharply with the growth of "fast-casual" chains like Panera Bread, Baja Fresh, and Café Express. They've concluded that "fresh food in distinctive settings" will prove to be the key to success. Gallup's research, however, says that even this isn't enough.
Whether the brand is McDonald's or Baja Fresh, Wendy's or Panera, restaurant marketers must never forget that it's not just the stores, the ads, the uniforms, or the burgers (or burritos) that must "deliver." It's the people.