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In its second-quarter 2014 earnings call, McDonald’s’ executives announced a number of disappointments: global comparable store sales were flat, guest counts declined, and four of the company’s largest markets, including the US, were also its weakest performing. However, it also laid out an ambitious new goal for itself: Figure out a way to rehab its image in its domestic market, make itself a “more trusted brand” and finally, finally, figure out how to compete with fast casuals.
The latter announcement was serendipitously timed, coming amidst the fallout of yet another China-based food safety scandal. In this iteration, a local subsidiary of major McDonald’s supplier OSI Group was allegedly caught mishandling meat and tampering with sell-by dates in order to sell expired products. Though the scandal didn’t directly touch US outlets, the involvement of a major US company brought it closer to home, challenging consumers’ trust in fast food just as industry leaders are working hardest to preserve it.
The announcement also comes after a year of reckoning for traditional fast food chains in the US, in which operators have been forced to realise that surface-level improvements may not be the key to long-term success after all. Stylish outlet remodels, new menu items, and shiny new service models can win back a lot of favour with consumers—and they did, for a time—but ultimately the entirety of the dining experience has to live up to these upgrades. US consumers may prefer a McDonald’s outlet with comfortable seating, free Wi-Fi, and flat-panel menu displays to the McDonald’s outlet of a decade ago, but those perks can only hold customers’ attention if the food, the service, and the brand identity itself can likewise measure up.
All of this combined with the disappointing results many traditional fast food leaders have been facing in the US over the last year points to an important conclusion that fast food operators may not be quite ready to face: There simply isn’t a way for traditional fast food operators to compete directly with fast casuals—at least not through the paths they’ve been attempting. Fast casuals are so appealing because they tap into the popularity of the quick-service format while offering better quality food, made with better quality ingredients, and prices that reflect those benefits. Short of completely overhauling their business model, raising prices significantly and most likely reinventing their entire supply chain and in-store operations, traditional fast food simply can’t compete on those same terms.
Instead, any changes made to traditional fast food in order to make them feel more like fast casuals will be, by definition, surface-level changes meant to evoke the feeling of fast casual without the holistic experience that has been so important to its success. Over the past year, US consumers have made it clear that fast casual-esque is no longer enough, suggesting that fast food concepts will never fully win them back.
This means it’s time for traditional concepts to let go of that goal and focus their domestic energy in a more productive direction, starting with making traditional fast food appealing again, on its own merits. This will mean reverting to the category’s origins by offering very fast, very inexpensive, very appealing food to people who need convenience over luxury, ease over variety, and lifestyle branding without the higher costs that typically come along with it. Instead of trying to mimic the fast casual dining experience, fast food chains should go back to promoting what sets them apart, adapting those benefits to modern preferences so that they appeal to a generation that prioritises quality and branding as an extension of one’s self-image. Today’s US fast food customer wants fast service that is still friendly and precise, they want cheap food that is still made from safe, high-quality ingredients, and they want convenience that manifests via online ordering, mobile payments, and all the modern amenities that digital commerce provides. They also want a brand they can feel good about patronizing, with a logo that looks good in their Instagram feed.
The good news is, McDonald’s recent call to action shows that they’ve taken a step in the right direction. They’ve named three primary areas of domestic improvement for themselves over the next year—menu customisation and personalisation, digital engagement, and brand trust—with the emphasis firmly on the latter. McDonald’s has reinvented itself before, and history shows betting against the company tends to be a bad idea, but none of this can be done without some sacrifices. If McDonald’s can go back to basics, focus on improving the quality first, eschewing flashy new LTOs and premium menu items in favour of higher quality core basics like beef and eggs, they’ll stand the change of reinvigorating their core customer base and finding their way back to consistent quarterly growth.
This issue goes far beyond McDonald’s of course, and the same identity crisis is facing other fast food leaders in the US market. If traditional fast food can’t catch up with fast casuals, then what is left for them to chase, and how can they carve out their own niche when consumer preferences are evolving so quickly?
One brand that seems a few steps ahead of the rest is Taco Bell, in that they’ve been carefully pursuing a two-pronged domestic strategy since parent company Yum! Brands reorganised to give the concept more autonomy in preparation for more aggressive international expansion. On the one hand, Taco Bell has taken steps to improve its flagship brand, maximising its appeal to its core customer base while still working within the confines of the traditional fast food category. This involved adding breakfast for the first time, improving the quality of its meat in some key menu items, and adding a “Cantina Power” menu designed to appeal to millennials who equate higher protein content with healthier and higher quality food.
Simultaneously, the company has been testing a handful of standalone fast casual concepts designed to tap into the Chipotle phenomenon, each of which is a complete departure from the Taco Bell brand. Rather than shoehorning the existing concept to fit the fast-casual category, they’re using their knowledge of their customer base to design new potential restaurants that might better appeal to fast casual demand. Their approach is at risk of seeming a little haphazard, with no less than three different concepts in the works that range from fusion tacos in California to Vietnamese banh mi in Texas, but at its heart they have the right idea. If traditional fast food can’t beat fast casual, they should join them, leveraging their resources and market knowledge to do what small independent start-ups can’t.
With the combination of these two strategies, Taco Bell has laid out a blueprint that might be the key to finding success in a difficult US market: First, recognise that fast food customers and fast casual customers are not necessarily drawn from the same pool, and that using one concept to try to appeal to both groups puts them at risk of alienating both instead. Second, any attempts at rebranding need to be implemented carefully and with long-term goals in mind, making truly holistic changes that won’t be undermined by another quality control scandal. The modern information era means customers are too smart not to realise exactly what they’re getting, especially if it isn’t what was promised. And as fast food operators know better than anyone, brand trust is very slowly gained, and much more quickly lost.