Fast Food

Rising consumer expectations trigger operational changes

Brands improve healthiness and experience

McDonald's had a difficult year. But the challenges facing the world's largest fast food restaurant chain reflected powerful forces disrupting and transforming the entire category.

For consumers concerned about healthier ingredients, ethical supply chains and environmental responsibility, the fast food formula of low prices for simple meals delivered with consistent quality in a familiar setting was no longer sufficient.

To meet these expectations, fast food brands revisited their operations – from food sourcing to menu options and restaurant experience. Some did a better job than others and in so doing projected a larger brand purpose.

These operators included Chipotle, the Mexican grill, which led the BrandZ™ Fast Food Top 10 in Brand Value increase with 44 percent, and Panera, which experienced a decline in profit because of increased competition in the fast-casual market that it invented. Neither brand ranked in the Top 10 when the BrandZ™ Global report launched 10 years ago.

Chipotle's net income increased 36 percent while same-stores sales improved 16.8 percent in 2014. Chipotle operated in 1,783 locations, primarily in the US. In contrast, McDonald's operated in 14,350 locations in the US, its home market, where annual sales declined 1.1 percent, with a 4.1 percent drop in customer traffic and a like-for-like sales decrease of 2.1 percent.

Although McDonald's remained number one in the BrandZ™ Fast Food Top 10, the rank it's held since the inception of the BrandZ™ Global Top 100 report a decade ago, McDonald's declined 5 percent in Brand Value, following a 5 percent decline a year ago. With a sharper menu focus and a boost from the stronger US economy, Burger King improved 19 percent in Brand Value on a 9 percent gain a year ago.

A merger of Burger King and Tim Hortons, the Canadian coffee shop chain, resulted in an organization of over 19,000 restaurants, the world's third-largest fast-food operation (by location) after McDonald's and Yum! Brands. The transaction signaled plans to expand aggressively outside of North America.

McDonald's responds

Chipotle represents the freshness-focused end of the fast food brand continuum, while McDonald's is a pioneer of process, capable of providing affordable and well-priced meals with machine-line proficiency across enormous location networks.

McDonald's operates over 36,000 restaurants worldwide, second only to Subway, with almost 44,000. But the McDonald's operation is much more complicated, and that was part of the company's problem.

McDonald's experimented with many new menu options, which added cost and slowed service. In contrast, Burger King adopted a strategy of launching few new products quickly prepared and highly promoted to meet the needs of its price-conscious customers.

When Ray Kroc established McDonald's in 1955, the chain's post-war industrial efficiency was a value consumers respected. For chains like Chipotle and Panera, efficiency is an operational necessity that customers take for granted, but sustainability is the value they respect more.

McDonald's had taken incremental steps to link efficiency with sustainability, adding healthier menu items and refurbishing its locations. Recently appointed McDonald's CEO Steve Easterbrook articulated a strategic imperative to remake McDonald's as what he called a "modern progressive burger company."

Within weeks of Easterbrook's appointment, McDonald's announced US plans to phase out menu items made from chickens treated with most antibiotics. It also offered the option of milk from cows not treated with growth hormones. And the company raised employee hourly wages in US company-owned stores as a step toward creating a devoted workforce and improving customer experience.

Top 10 Chart

Higher purpose

Starbucks CEO Howard Shultz most clearly demonstrated the power of a CEO to connect a brand to a higher purpose. Before other fast food and retail brands felt pressured to raise employee minimum wages, Starbucks paid higher hourly rates and introduced a college tuition reimbursement program for employees.

When the recent period of high unemployment coincided with the return of many soldiers from wars in Iraq and Afghanistan, Starbucks pledged to hire 10,000 veterans or their spouses.

And when Americans protested a controversial grand jury decision regarding the shooting of an African American by white police officers, Shultz inserted Starbucks into the national conversation about race.

These initiatives inspired both supporters and critics. They reinforced Starbucks' credentials as a bold and forceful brand from which customers can expect strong jolts of caffeine and progressive social opinion and action.

Practical business

With 21,366 locations in 65 countries, Starbucks has enormous impact on the environment and the lives of people along the supply chain. But like its competitors, Starbucks is in business to make money, and it did. Food sales, including its new sodas, bakery and other offerings, increased the average ticket; as a result same-store sales grew 6 percent.

Similarly, some of the fixes McDonald's implemented under Easterbrook were more for driving revenue than clarifying purpose. The chain announced the plans to experiment with all-day breakfast, for example. Extending a popular and profitable daypart was easier and less expensive than adding new menu items.

Domino's Pizza enjoyed its fifth year of like-for-like sales growth following the reformulation of its pizza recipe. Flavor improvement was only one part of the Dominos success story. The brand also focused attention on fewer, more impactful offerings and invested in brand communication and digital.

McDonald's, Starbucks and Panera were among the first fast-food restaurants to accept Apple Pay when it was introduced. At Starbucks, which offered its own payment system, 16 percent of US purchases were transacted using mobile. Starbucks also planned to experiment with mobile ordering.

Transparency and ingredients

In an effort to be more transparent and meet criticisms head-on, McDonald's launched its "Our Food, Your Questions" campaign, in which a brand spokesperson frankly answers customer questions such as why the burger in the box doesn't quite look like the burger in the advertising.

That kind of transparency has worked in the past. Domino's Pizza launched its new pizza recipe with a video of mortified executives vowing to improve the taste of the pizza, and courageously revealing that focus groups at the time compared it with cardboard.

Chipotle introduced a satirical video series called "Farmed and Dangerous," which expanded on earlier videos that demeaned industrial agriculture and associated the brand with natural and more wholesome sourcing.

The company increased the transparency of efforts to reduce and ultimately eliminate genetically modified food. Food safety issues related to meat sourcing in China hurt McDonald's as well as KFC and Pizza Hut, both part of Yum! Brands.

Brand Building Action Points

1.

Add meaning. Many fast food leaders have grown to global scale because they are excellent, well-run machines. But the machine model doesn't go far enough anymore. It's necessary to add layers to the machine, perhaps a personal touch, a sense of generosity to the customer or the commitment to stand for something larger.

2.

Be purpose driven. Whatever promise the brand stands for, deliver it consistently, from supply through to the restaurant experience and brand communications. Also, renew the operation regularly because if it's good, a competitor is ready to copy it.

3.

Renew and improve the brand experience. How customers experience the brand depends on multiple factors including food quality and taste, speed and friendliness of service, and the restaurant environment. In fast food, change happens fast; a new concept today can be playing catch-up tomorrow.

10-Year Trends & Analysis

Fast food leads categories in growth of Brand Value

Fast food led all 13 categories in the BrandZ™ Global Top 100 report in the rate of Brand Value growth over the past 10 years. The BrandZ™ Fast Food Top 10 grew 252 percent in Brand Value over the past 10 years, double the pace of the Top 100, which grew 126 percent.

The Fast Food Top 10 also improved in Brand Power, the BrandZ™ measurement of brand equity. Between 2006 and 2015, Brand Power of the Fast Food Top 10 grew from 103 to 146. An average brand scores 100. McDonald's, more valuable than the rest of the category put together, maintained brand power as new competitors, such as Chipotle and Panera introduced new category concepts, Starbucks refurbished its brand, Domino's Pizza renewed its recipe and Burger King rebounded.

However, consumer opinion of fast food brands as being responsible declined sharply during the recession and then recovered, but not to its former level. In 2008 the Fast Food Top 10 scored higher than the Top 100 in responsibility, 110 compared with 103, on an index where an average brand scores 100.

During the recession, the Fast Food Top 10 responsibility score declined below 100. It's only 103 today, while the Top 100 score has increased to 107. These findings suggest that the global economic crisis left consumers skeptical about brand responsibility across many categories and especially fast food.

While the Fast Food Top 10 high Brand Value and Brand Power scores reflect how consistently these brands delivered affordable and tasty food over the past 10 years, that achievement may no longer be enough to meet rising consumer concerns about supply chain ethics and food healthiness.

Consumers skeptical about responsibility of fast-food brands

Insight

Experience differentiates brands

We're seeing a rise in food quality over time. But that's homogenizing the category at a relatively high level. In many categories it's difficult to buy a really bad product. In fast food it's getting harder to find a bad meal with virtually all the traditional players improving their offers. A quality experience can be an important differentiator. It can sometimes nullify price as a factor.

Philip Herr
Senior Vice President
Millward Brown
Philip.Herr@millwardbrown.com

Future View

  • Concerns about health and wellness will influence the food choices that people make. But people will be open to occasional indulgences.
  • Ingredient sourcing will influence choice, as people increasingly will prefer sustainable, locally-grown organic options.
  • Consumers will be open to new food tastes. Some will be variations on existing products, e.g. Shake Shake Fries - French fries serviced with small pouches of seasoning, a McDonald's menu item from Asia that's increasingly available in the US.
  • Price will remain important, but most consumers won't calculate price to the penny. They'll look at a price band - $5 to $8, for example - select whatever best meets their needs.

Up 4%


Fast Food - Top 10 Total Brand Value
$179.3 BILLION


Category Definition
The fast food category includes Quick Service Restaurants (QSR) and casual dining brands, which vary in customer and menu focus, but mostly compete for the same day parts.


BrandZ Top 100 2015

BrandZ Global 2014 Report Top 100 Report

Top 100 Chart

Top 100 Infographic


Methodology and valuation by Millward Brown

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