McDonald's vs. Chick-fil-A: an early read on the Golden Arches' chicken foray
McDonald's new chicken sandwiches have sold well in their first two months on the menu, but they appear unlikely to overtake poultry leader Chick-fil-A.
The Chicago-based fast-food giant entered the chicken sandwich fray in late February, offering three takes on the new sandwiches: Crispy, Spicy and Deluxe, all served on a potato roll with various toppings. McDonald's franchisees had long asked for a sandwich that would compete with chicken stalwarts and tap the hottest menu trend in fast food.
Three out of five U.S. customers are interested in trying a premium chicken sandwich, according to recent survey from market researcher Datassential. That demand pushed U.S. sales at chicken-focused fast-food restaurants—a category that includes Popeyes, KFC and Chick-fil-A—to more than $32.2 billion in 2020, up 7.6% from a year earlier, according to market researcher Euromonitor International. U.S. sales at their burger-focused counterparts, on the other hand, dropped 2.9% to $113.8 billion in 2020.
By the time McDonald's rolled out its new offerings this year, the chicken sandwich war was well underway and the battlefield was crowded. Competitors like KFC, Burger King and even Taco Bell have launched crispy chicken items. They're all chasing Chick-fil-A, which is a growing competitive threat to McDonald's, and Popeyes, whose sandwich started the recent craze.
But experts say that in a contest like this one, a chain doesn't necessarily need to become No. 1 to succeed. In fact, McDonald's new offerings could be considered at least a partial success if they keep customers from defecting to rivals offering chicken sandwiches.
McDonald's restaurants are selling about 260 crispy chicken sandwiches per day on average, according to a recent franchisee survey by Kalinowski Equity Research. One-third of respondents said sales were higher than expected, and only 10% said the sandwiches were selling below expectations.
"Long term, the chicken products are going to be a real positive, but it'll be hard to tell with all the new and changing elements in today's business. But I'm glad to have them," wrote one franchisee responding to Kalinowski's survey. Said another: "The second and third quarters are going to be great for same-store sales. Not too sure about the fourth quarter and 2022. Chicken intro advertising ends now, so we'll see how the product sales hold up."
CEO Chris Kempczinski said during McDonald's most recent earnings call that the company understands it needs to support the sandwiches "over a longer period of time," rather than putting "a bunch of media weight against it for a quarter and then move on."
Even so, sales of a new item typically drop by one-third when a national advertising push ends, says Mark Kalinowski, CEO of the research firm. But even at 175 sandwiches per day, the premium-priced product would still generate 8% to 11% of a U.S. McDonald's restaurant's annual sales.
"That'd be a very successful menu item," Kalinowski says. "On top of that, McDonald's has said, 'Look, this is kind of the start of our chicken journey.' There's more to come."
Indeed, McDonald's USA President Joe Erlinger told investors last year that chicken will be at the heart of the company's growth strategy and that the new sandwiches in particular will offer the biggest opportunity. On the earnings call, executives said the chicken sandwiches—along with the return of Spicy Chicken McNuggets, stimulus checks and other factors—helped lift U.S. same-store sales growth to 13.6% in the first quarter. And in April, the chain began testing chicken-based breakfast sandwiches in Ohio and Sacramento, Calif.
But are the new sandwiches good enough to steal customers from competitors and establish McDonald's as a go-to for chicken? Early indicators suggest that McDonald's still has some work to do there.
"I don't have Chick-fil-A near my stores, so the chicken products are well-received," said one franchisee who responded to Kalinowski's survey, but none mentioned pulling customers away from the chicken champ.
Tellingly, none of the consumers polled in a rolling survey from market research firm Technomic described McDonald's chicken sandwich as a "craveable item." In contrast, 32% of recent Chick-fil-A customers and 29%of recent Popeyes customers called those chains' chicken sandwiches craveable.
That could indicate McDonald's chicken sandwich isn't driving visits to the chain, says Robert Byrne, director of consumer and industry insights at Technomic. The need to satisfy a craving is one of the top reasons people visit restaurants. It drove 43% of visits to quick-service restaurants in 2020, up from 41% in 2019, according to Technomic.
"Everybody is doing a chicken sandwich right now, and people are still sort of in that comparative space where they're thinking about this compared to Chick-fil-A. It's always going to be compared to Chick-fil-A, the long-standing gold standard," Byrne says. "If it's just not there, that doesn't necessarily mean it's not a successful item . . . it just means that it may not necessarily be that really strong driver of repeat visitation that you want your menu items to be."
There's also the possibility that McDonald's chicken sandwich sales are primarily driven by existing customers switching from burgers and other menu items rather than new customers flocking to the chain for chicken. If so, the new sandwiches won't do much to boost customer traffic, a long-term challenge for McDonald's. Still, they could succeed as a defensive measure by keeping existing customers from leaving to find a chicken sandwich elsewhere.
During the pandemic, McDonald's sped up drive-thru times by reducing menu complexity, which ultimately helped boost same-store sales growth. The chicken sandwiches add a little complexity back. That could be worth it, as long as the sandwiches do more than just cannibalize sales from other menu items, says Morningstar analyst Sean Dunlop.
McDonald's Erlinger told analysts on the earnings call that executives consider the launch successful and that McDonald's is "selling substantially more chicken sandwiches compared to our previous chicken sandwich line."
McDonald's is planning a loyalty program that could help boost repeat purchases of the sandwich, says Dunlop. But McDonald's biggest challenge will be establishing itself in consumers' minds as a place to get chicken.
"For quick-service chains, so much of these products is building a following," Dunlop says. "Chicken sandwich sales are probably not top of mind for most consumers when you think of McDonald's still."
Ally Marotti is a reporter for Crain's Chicago Business