Who has got the right strategy?  ©

In the fight to gain extra share of stomach in the $426 billion US foodservice market, strategy is obviously a huge determinant of success. For the first time in many years, it seems there may be some substantial differences developing in strategy between the big players in the fast food sector.

With all due respects to the key chains in the sector – McDonald’s, Wendy’s, Burger King and to a lesser extent Yum  Brands Inc. (parent of KFC, Taco Bell, Pizza Hut), they were all chasing basically the same customer at roughly the same price point via similar communication vehicles.

In a market which is becoming increasingly crowded and, in demographic terms slowly but surely moving away from the historic fast food menu, the requirement to develop new differentiated strategies becomes more urgent.

The most intriguing strategic response to the new marketplace comes from Yum Brands Inc. and their efforts to develop multi-brand units across the globe. Thus, Yum envisages multi-unit concepts featuring KFC and Long John Silver’s, or Taco Bell and A&W. Chairman and CEO David Novak believes that multi-branding is “the biggest thing to happen to the industry since drive-thru”. This is a strong statement but one which Yum Brands are living by given that they have created a separate structure to drive this strategy which they believe has a potential of 10,000 units in the US alone.

The advantage for Yum is that this strategy will allow them to truly leverage their major brands to build penetration for Long John Silver’s and A&W as well as their new pasta concept Pasta Bravo. The financial advantages come through integrated kitchens, staff flexibility and much greater unit volumes – up to 20% according to Yum. The net result should be that unit economics will improve.  The consumer advantage is greater choice and for all those parents out there, that is reason enough to be thankful for this concept.

This multi-brand strategy is in sharp contrast to that of McDonald’s Corporation who are re-focusing aggressively on their core brand. In the medium term, the Yum strategy will present serious competition for McDonald’s, simply because of the enhanced choice, but this is no reason for McDonald’s to follow down the same path. The Oakbrook based giant can grow profits substantially simply by getting back to basics, a fact that Chairman and CEO Jim Cantalupo constantly re-emphasizes. This has implications for their Partner Brands – reportedly on the block, but if no one is prepared to champion some of these good concepts, particularly when capital expenditure is being pared back, then they should be sold.

Wendy’s – despite a current blip - has been the most consistently successful player in the fast food sector for a number of years. While the chain continues to build out units, they will surely soon find, as with McDonald’s this can only continue for a limited period. The strategy of this Columbus, Ohio based corporation differs from the previous two in that it does believe strongly in partner brands but ones that will stand on their own. Thus Tim Horton’s slow but sure expansion from Canada will continue as will Baja Fresh. The joint venture with Irish company IAWS, under the Cuisine de France brand to supply par-baked French bread and confectionery has substantial potential. These are wise moves for The Wendy’s corporation, not just because they make good market sense, but the Wendy’s brand is going to face very challenging times going forward.

The most obvious reason is that their biggest competitor has woken up, but a less obvious yet just as important factor is the loss of Dave Thomas. Irrespective of how well they continue to run their operations, Wendy’s “likeability” factor will decline slowly over the next decade simply because the grand-fatherly Dave Thomas is no longer with us. This is particularly ironic when McDonald’s seem to have re-discovered their iconic figure – Ronald McDonald who can build “likeability” for them.

Burger King is the unknown in this game right now. In CEO Brad Blum, they have a proven industry veteran. Blum may well be the best thing to happen to Burger King in a long time, because he knows consumers and is likely to provide a level of stability and consistency of strategy which has been sorely lacking for this brand. His biggest challenge is that up to 20% of Burger King Franchisees are in financial difficulty, thus ensuring the top priority is financial restructuring which he has indicated may take up to 18 months to complete. Given the diverse and aggressive customer oriented strategies of BK’s major competitors, that may be a very long 18 months.

Each of the big players is taking a different strategic route right now. It will be interesting to review in five years who has got it right.

Conor Cunneen is President GROW Foodservice Profit. He is an acclaimed and award winning motivation speaker, strategy speaker, leadership speaker and marketing speaker. He is the 2003 Chicago Toastmasters Humorous Speaker of the Year.

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