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McDonalds McWrap trying to compete with Subway | blog.bodellconsulting.com

Chicken McWrap picture

New Chicken McWrap from McDonalds

It looks as if McDonalds is making a move to try and keep up with Subway which has outpaced McDonald’s growth by a large margin in the last few year and surpassed McDonalds to become the largest restaurant chain, measured by number of stores, sometime in 2010.McDonald’s latest attempt to defend it’s position as a market leader manifests itself with a new menu item, the McWrap, that is aimed at millenials who gravitate toward higher quality, healthier menu items.

Their thought is that they want to give millenials a reason not to go somewhere else if they are trying to eat better.

Here’s my take:

The goodIt’s always a good idea to consider where the market is going. Staying ahead of menu trends can help a restaurant remain a market leader. Making intelligent changes based emerging trends may also prevent the concept from getting stale and protect it from competition from newer, trendier restaurants.

The risk – Rolling out new menu items to compete with other chains can hurt the market position of a restaurant brand. A well established brand like McDonalds means particular things to people. Screwing not just with menu items, but with menu direction can adversely affect a restaurant’s ability to deliver on the preconceived notions that diners already have about a restaurant. Not delivering on your customer’s expectations will hurt any brand, even one as big as McDonalds. A great example is the Angus burger line for McDonalds. They rolled out this line to compete with the emerging high quality “quick casual” concepts that have been dominating new growth in the quick service segment the last decade. The effort has been widely seen as a failure and the Angus burgers maybe on their way out of the McDonalds menu lineup.

McDonalds needs to make sure that any new menu items take advantage of their current market position. They will never be able to rebrand themselves as a “healthy” concept. They will never be an “upscale” quick casual concept. That just isn’t why McDonald’s existing customers go there, and trying to be those things can alienate those existing customers and confuse new customers who relate to McDonalds one way through their existing customers and another way through McDonald’s own branding efforts.

The verdict – It’s up to history how the McWrap will do at McDonalds. I predict a big, fat flop. First, the McWrap is being rolled out to chase health conscious millenials who are simply never going to see McDonald’s as a healthy place to eat, despite the fact that McDonalds does in fact have healthy menu items. The Angus burgers failed to help McDonalds position itself as a quick casual or high quality option like it’s “quick casual” competitors. It was a waste of time and resources.

The advice – McDonalds would make more money realizing that what it’s customers want most is speed and consistency. People don’t expect the best hamburger from McDonalds and frozen 1/4 lb Angus patty doesn’t deliver it anyways. It’s great to try new menu items to keep your existing market demographic happy. It’s not great to sacrifice your existing market position to chase a completely different market. McDonalds should refocus on who it is most likely to come to their restaurant, trim the fat from extra menu items that don’t speak to that market, then focus on innovative ways to reach new customers that have the same sensibilities and desires as their existing market base.

Brandon O’Dell of O’Dell Restaurant Consulting offers operations and marketing consulting for restaurants and food services of all types. Visit www.bodellconsulting.com for more information and find downloadable spreadsheets and management tools in the webstore at www.bodellconsulting.com/webstore.html.

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Are daily deal sites like Groupon good for restaurants?

With most of these sites, you offer a gift certificate that is sold on the site for 50% off. That’s a pretty big hit already, and by itself would turn one of these deals into a money loser. To make it really expensive though, these deal sites demand 50% of the money that is collected, and expect you to pay for the processing cost of the transactions for your gift certificates.

In numbers, here is how the “deal” looks.

  • You offer a $50 gift certificate for $25.
  • Groupon keeps $12.50, you keep $12.50.
  • You pay a 3.5% processing charge on the full $50 sale, which is $1.75.
  • You net $10.75 for $50 worth of your product.
  • The customer comes in and spends $10 over the gift certificate with a net tab of $60 (if you’re lucky).
  • You run a food cost of 33% on your product meaning that the food you sold cost you $20 to sell.
  • You normally run a 30% labor cost. You think it will go down when these deals get redeemed since you are busier, but you forget to factor in your loss of revenue so your labor cost actually goes up to 40%, not down, costing you $24 in labor.

Without calculating in other costs like laundry, chemicals, wear and tear on furniture, fixtures and equipment, and every other cost of you doing business outside of the 10% of your budget that is fixed, this daily deal that netted you $20.75 in sales (thanks to the extra $10 they spent) cost you $44 to sell. That’s a net loss of $23.25 for every deal that you sell. Since most deals sell 1000+ gift certificates, you could be looking at your Groupon, Restaurant.com or LivingSocial “advertising” campaign costing you $23,000 or more.

In contrast, that amount of money could buy you a premium billboard location ad for a year, two years worth of cable TV ads or 6 months of prime network television ads, two to four years of radio advertising, two years of service from a professional public relations specialist or full page color ads in two premium magazine circulations for an entire year.

One of the “selling points” for the daily deal is that the cost is spread out so you don’t have to pay for it all at once. In truth though, all advertisers will do this for you. The daily deal sites are doing you any favors or offering you anything you can’t get from another advertising medium. What they ARE very effective at is getting customers through your door, who will likely be loyal to the daily deal site instead of your restaurant, who will tip your servers low because of their low check averages, and who you will likely never see again.

There are a few businesses that daily deal sites could be good for, but restaurants are not one of them. For some great analysis on other problems created by these sites, for both business owners and buyers of these deals, check out the following article from USA Today, based on a study by Applied Predictive Technologies…

Daily coupon deals may not work for buyers, sellers | USAToday.com

Brandon O’Dell and O’Dell Restaurant Consulting offer operations and marketing consulting for independent restaurants, private clubs and food services. Learn more at www.bodellconsulting.com.

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