With traffic challenged, fast food turns up the marketing heat

Deals and gimmicks show how competitive QSR is, but there are definite dangers, says RB’s The Bottom Line.
Photograph courtesy of CKE Restaurants

The Bottom Line

On Wednesday morning, my email inbox included these releases:

Domino’s is expanding its pothole filling program.

KFC wants people to name their kids Harland.

White Castle will give away food to people named Bacon.

Taco Time became the latest Mexican chain to join the deal parade with a $3.99 burrito offer.

In other words, it was fairly typical.

Some of these marketing strategies are better than others. But all of them demonstrate the modern reality in the fast-food business: You’d better be doing something aggressive to lure customers, or you’ll lose them.

To be sure, guerilla marketing and discounts are hardly new ideas, and many of these strategies are common in the restaurant business. And executives will probably respond with comments like, “The business is always competitive.” That’s true, too.

But it’s more competitive now than it’s been in a while—certainly since the traffic-starved recession.

Worse, it’s probably a sign of things to come.

Total fast-food traffic is up just 0.8% on average so far this year, according to numbers from the Technomic Chain Restaurant Index, including 1.1% growth in July. That barely keeps pace with unit count growth.

Major chains such as McDonald’s, Jack in the Box, Starbucks and Chipotle, among others, have been losing customers this year.

The traffic challenges are largely due to industry saturation. There are too many restaurants for the amount of demand.

When consumers have a lot of choices, they make them.

This increases the importance of marketing, so fast-food chains can get attention, so customers will choose them more often.

My colleague Heather Lalley noted in June that there is growing pressure on companies’ chief marketing officers to perform. It’s also worth noting that successful CMOs are increasingly finding themselves in the CEO role: Chipotle CEO Brian Niccol had been the CEO of Taco Bell and before that came up through marketing.

The intensity of the competition in the fast-food business has many chains pushing discounts to get customers in the door.

Earlier this week, Del Taco started offering a selection of two classic burritos for $5, taking a shot at rival Taco Bell in the process by saying it “thinks outside the box” with the offer.

In so doing, it joined a host of other chains making such offers.

McDonald’s this summer started its own two-for-$5 offer that includes the Big Mac—it was likely tired of seeing customers head to Burger King or Wendy’s for their 2-for-$5 premium sandwich offers.

Burger King has been aggressive with discounts. Wendy’s has, too, and has thrived in part on its 4 for $4 offer.

Jack in the Box is working up its own deals to remain competitive without “training” customers to come in only on a deal, as CEO Lenny Comma has noted.

Indeed, there are definitely concerns about profitability in an era of heavy discounting. At some point, consumers will get too used to discounts, as both McDonald’s and Subway have learned with their struggles to get over evolutions of the Dollar Menu and $5 Footlong, respectively.

But it’s not just the discounts.

KFC has made a habit of finding new ways to use its founder, Colonel Harland Sanders, in its marketing.

Earlier this week, Hardee’s and Carl’s Jr. announced the introduction of Froot Loops Mini Donuts, continuing a trend toward attention-getting products.

Chipotle Mexican Grill, eager to get past its food safety issue, hired Niccol and new CMO Chris Brandt and has been especially aggressive, with a free guacamole offer, then a buy one, get one deal for students and now yet another free-delivery promotion.

And even McDonald’s is getting into the act. It’s been more aggressive on innovation of late, with a new version of its chicken tenders and a test of a McGriddle made with French toast.

This is the fast-food business in 2018. You are either out there, all the time, pushing discounts and making yourself seen, or you’re losing.

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