McDonald's last week posted its fourth-consecutive quarter of double-digit profit gains, handily eclipsing second-quarter expectations. Sales for the quarter jumped 10% to $4.7 billion and its 9% U.S. same-store sales increase in June made the solid 5.9% rise at deposed darling Wendy's International look weak. Rival chains, including Triarc Co.'s Arby's and Burger King Corp., have blamed McDonald's resurgence for sales woes.
Wendy's executives found themselves grilled by analysts last week to explain why sales slowed more in comparison to "other competitors."
Strong strategy and creative, heavy media investment, a reinvigorated menu including salads and a renewed focus on the consumer experience has put a shine back on the Golden Arches, and rivals aren't lovin' it. McDonald's is "a momentum machine," said one restaurant industry marketer. "What they have done is exceedingly difficult."
The chain has indeed raised the industry bar, said Allan Hickok, an analyst turned investment consultant. "They have the most marketing muscle in terms of the dollars they can apply to a product that when they get operations and the product pipeline dialed up, they're pretty tough."
But he said every chain shouldn't be held to McDonald's standard, especially Wendy's, which has been a consistent performer and isn't coming off a depressed base.
`got their act together'
Debra Mager, senior VP-brand for Arby's Franchise Association, conceded that McDonald's had an effect on the roast-beef chain's business. "We don't have the money they have to spend and McDonald's got their act together."
Up until February, when Burger King eked out same-store sales gains, franchisees complained that the Miami marketer's management was not improving sales while McDonald's basked in double-digit sales growth.
In his July 22 call with analysts, McDonald's CEO Charlie Bell said its "Plan to Win"-focusing on price, people, product, place and promotions-has stabilized the business.
But McDonald's has bigger plans. "There is still significant growth we can capture," said Mr. Bell, adding that "we must now move from being just competitive ... to being the superior, most relevant restaurant experience."
While he wouldn't identify specific strategies, Mr. Bell predicted more efficiency in how the chain will launch products and marketing efforts in multiple markets and promised continued service improvements.
It must also compete with its own standards and performance improvements. Analysts and industry observers have forecast a category-wide sales slowdown in the second half of the year and many chains are victims of their own success, stymied in surpassing strong same-store sales. Wendy's was among the first to experience this; Burger King is expected to post strong sales in July and August.
In an internal "State of the U.S. Business" document obtained by Advertising Age, McDonald's said "Burger King isn't sitting still" and warned that McDonald's "continues to outperform our competitors but recently at a lower level." The April document said 2003 momentum was driven by the improved economy, industry growth and its Plan to Win.
McDonald's summarized the report by saying opportunities are in price increases and improving customer satisfaction. It noted "competition is hurt but fighting back." However, it said some "vulnerable" Burger King sites could add 4% to 5% in McDonald's same store-sales.