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McDonald’s : Competing Against Fast Casual Dining

McDonald’s : Competing Against Fast Casual Dining. MKTG 277/777 Jesús Alcázar , Christopher Kuo , Danielle Levite, Brenda Nguyen, Erik Pump. Agenda. Background (Brenda) Current market situation (US) Survey McDonald's : perception vs. reality Recommendation for McDonald's

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McDonald’s : Competing Against Fast Casual Dining

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  1. McDonald’s: Competing Against Fast Casual Dining MKTG 277/777 JesúsAlcázar, Christopher Kuo, Danielle Levite, Brenda Nguyen, Erik Pump

  2. Agenda Background (Brenda) • Current market situation (US) Survey • McDonald's: perception vs. reality Recommendation for McDonald's • Compete for more market share • Product • Price • Place • Promotion • Limitations

  3. Market Trends: From Fast Food to Fast Casual • Fast Food: Food that is prepared and served quickly at inexpensive restaurants with preheated or precooked ingredients • Fast Casual: Hybrids of quick service and casual dining that provide counter service and offer more customized and freshly prepared dishes than traditional fast-food

  4. Market Trends: From Fast Food to Fast Casual Fast Food Market • Worth $162 billion • 2.2% growth in sales revenue Fast Casual Market • Worth $22 billion • 5.7% growth in sales revenue Fast casual burger segment • 16% growth Fast food burger segment • 3.2% growth Burger Industry Worth $40 billion

  5. McDonald's (U.S.): SWOT Analysis • Strengths • Brand name • Locations • Advertising • Price • Weaknesses • Unhealthy image • Low quality food • Bad stigma • Opportunities • Expansion • Promotions • Healthy trends • Threats • Intense competition • Health regulations • More health-conscious consumers

  6. Five Guys • Simple, casual and diner environment • 792% growth since 2006 (32.8% in 2011 alone) • Nearest competitor is Jimmy John's, which grew 241% over the same period • Entire chain surpassed $1 billion in revenues in 2012 • Worth an estimated $500 million

  7. Measuring Reality v. Perceptions of McDonalds

  8. Primary Research Survey • Asked respondents to rank McDonald’s, Five Guys, Wendy’s and Smashburger on: • Healthiness, Menu Variety, Price, Quality, and Taste on a scale of “very poor” to “excellent” • At end, asked respondents to rank each characteristic from “not important at all” to “very important”

  9. Price McDonald’s Double Quarter Pounder with Cheese $4.49 • Five Guy’s Cheeseburger (Double Patty) • $6.39

  10. Price McDonald’s Large Fries $2.49 Regular Soda (Medium) $1.59 Total before tax: $8.57 Five Guy’s Large Fries $4.99 Regular Soda $2.29 Total before tax: 13.67

  11. Do Perceptions Match Characteristics? • McDonald’s Perceived Price • 82% of survey respondents cite it as very cheap or cheap • Five Guy’s Perceived Price • 78% of survey respondents cite it as moderate or expensive

  12. Healthiness McDonald’s Double Quarter Pounder with Cheese 750 Calories 43g Fat 19g Saturated Fat 1280mg Sodium Five Guy’s Cheeseburger (Double Patty) 840 Calories 55g Fat 26.5g Saturated Fat 1050mg Sodium

  13. Healthiness Five Guy’s Large Fries 567g 1314 Calories 57g Fat 10g Saturated Fat 1327mg Sodium McDonald’s Large Fries 154 g 500 Calories 25g Fat 3.5g Saturated Fat 350mg Sodium

  14. Do Perceptions Match Characteristics? • McDonald’s Perceived Healthiness • 61% rated as “very poor” • 25% rated as “poor” • Five Guy’s Perceived Healthiness • 31% rated as “very poor” • 39% rated as “poor”

  15. Taste Excellent Processed Fresh Quality Very Poor

  16. Summary of Primary Research • Severely lagging behind on perceptions for primary characteristics for the customers: taste and quality • Advantage on price • Also advantage on healthiness HOWEVERperceptions are unfavorable and customers do not realize

  17. RECOMMENDATIONS

  18. RECOMMENDATION Recommendation – Summary • Product • Create a higher quality burger • Price • More expensive • Promotion • Change their campaigns – not only fast food, but also clean restaurants, healthy food, including premium options • Place • Same places, change decoration

  19. PRODUCT McDonald’s Focuses on Standardized Meals

  20. PRODUCT Current McDonald’s Burger Selection • Highly standardized across the traditional menu • Customer familiarity with products

  21. PRODUCT • Salt, pepper, pickles, minced onions, ketchup, mustard

  22. PRODUCT Current Five Guys Burger Selection • (Little) Hamburger • (Little) Cheeseburger • (Little) Bacon Burger • (Little) Bacon Cheeseburger

  23. PRODUCT Five Guys: Customized Product

  24. PRODUCT Five Guys: High Quality Beef • “Five Guys uses 80/20 ground chuck-high quality ground beef containing only steer and heifer meat, which does not include any cow meat or fatty trimmings. We do not use ammoniated procedures to treat our ground beef.”

  25. PRODUCT

  26. PRODUCT Recommendations –Product • Introduce single new product • Fully customizable • Bun (Egg vs. White vs. Wheat) • Size (1/3 Pound vs. 1/2 Pound) • Toppings • Higher quality beef

  27. PRICE Recommendations –Price • Burgers currently in the range of $0.99 to $4.99 • Five Guys currently in the range of $3.39 to $6.99 • New product with an increased price ($6.00 - $6.50) • Free toppings

  28. PROMOTION New Product in a Distinct Part of Menu

  29. PROMOTION McDonald’s Advertising • McDonalds is one of the most prevalent fast food advertisers: television, radio, newspaper ads, billboards and signage, sponsors sporting events, etc. • McDonalds spends over $2 billion each year on advertisements --> has sufficient resources to allocate towards extensive advertising campaigns

  30. PROMOTION Comparison –Five Guys Advertising • Five Guys does not undertake rapid advertising and shuns national advertising campaigns, which they find fake, and instead rely on word of mouth. • As a result, a considerable portion of the target market is completely unaware of their existence • In contrast, the giant competitors of Five Guys (McDonalds) carry out intense all-media advertising campaigns which help them create enough attention so as to generate the desired consumer base

  31. PROMOTION Recommendations – McDonald’s Advertising • McDonalds should take advantage of Five Guys' weakness → Lack of Advertising -> Low Consumer Awareness • It should use its advertising advantage to promote a new premium menu and focus on an enjoyable dining-in experience

  32. PROMOTION McDonald’s Commercials http://www.youtube.com/watch?v=kZCbvpJ4O6c Q: What is portrayed in the commercial? Q: What is noticeably left out? --> Speed, efficiency, fast-paced

  33. PLACE Comparison –Five Guys • Fast-casual restaurant that successfully creates an environment that speedily serves specialty foods at moderate prices • They resemble sit-down diners that act as hang-out spots for friends and family seeking cheaper prices • Their simple and clean decor enables them to be perceived as a higher-end restaurant with quality food and reasonable prices

  34. PLACE Recommendations –Place • McDonalds has 13,382 stores in the U.S. • They should capitalize on their extensive real estate • Redirect the use of the funds towards purchasing quality meat and remodeling their current stores to enhance customer experience → striving for a more fast-casual environment

  35. Limitations / Risks • Economic • Legal • Other • Brand

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