There’s new blood at Burger King in the form of hedge fund manager William Ackman, whose Justice Holdings now has a 29-percent stake in the company.
According to Nation’s Restaurant News, Ackman is laying plans for Burger King to overtake category leader McDonald’s by using some of the same turnaround methods employed by the No. 1 chain.
“Burger King will do the same things, and do [them] much more rapidly,” he said.
It sounds logical. All a company has to do to become successful is to look at what the category leader is doing and then do it better. Or faster. Or cheaper.
But it doesn’t work.
What does work may sound illogical, but nevertheless is a core marketing strategy: Be the exact opposite of the leader.
Consider energy drinks, for example. Red Bull was the first energy-drink brand and rapidly became the global market leader, with sales last year of $5.6 billion.
One of the distinctive features of the Red Bull brand is its small, 8.3-ounce can. Like a stick of dynamite, the small can communicates the burst of energy you get by drinking Red Bull.
So it made sense for a raft of competitors to introduce their own energy-drink brands in 8.3-ounce cans. Amp, Hype, Power Full, Red Devil, Rush! and hundreds of other brands were launched in 8.3-ounce cans to compete with Red Bull. Even Coca-Cola entered the market with a brand called KMX — in an 8.3-ounce can, of course.
Then came Monster, which was one of the first brands to be introduced in 16-ounce cans.
Today Red Bull is still the global leader, but Monster is a strong No. 2 brand. In the American market Red Bull has a 43-percent share and Monster a 35-percent share. Rockstar, the No. 3 brand, has a market share of just 12 percent.
On the stock market Monster Beverage Corp. has a market capitalization of $10.4 billion. Not bad for a company whose major brand wasn’t launched until 2002. Note that Burger King Worldwide has a market capitalization of $4.7 billion.
Back in its golden days, Burger King had a differentiation strategy, too, in the form of an advertising program highlighting the fact that the chain broiled its burgers rather than frying them.
Led by Burger King’s dynamic former president Jeffrey Campbell and dubbed the Battle of the Burgers, the campaign generated a lot of consumer interest and favorable mentions in the media. But it ran only two years — from 1982 to 1984.
By the end of the campaign, McDonald’s lead in per-unit sales had been cut to just 26 percent. Today McDonald’s is ahead in per-unit sales by 116 percent.
Since then, everything has gone pretty much downhill for Burger King. The chain’s biggest problem is it’s trying to copy McDonald’s rather than trying to be the opposite. Here’s the proof:
• McDonald’s introduced Ronald McDonald. Burger King introduced the King.
• McDonald’s introduced Chicken McNuggets. Burger King introduced Chicken Tenders.
• McDonald’s installed playgrounds to attract kids. Burger King installed playgrounds to attract kids.
• McDonald’s added a dollar menu. Burger King added a dollar menu.
• McDonald’s added fruit smoothies. Burger King added fruit smoothies.
And so on.
The bad news for Burger King continues. Last year they fell behind Wendy’s in U.S. sales, the first time that had happened since 1969, the year Wendy’s was founded.
But McDonald’s does have some vulnerability.
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“McDonald’s brand perception isn’t keeping pace with sales,” Advertising Age reported earlier this year. “According to people close to the company, its internal tracking system finds that McDonald’s consistently ranks near the bottom in quality perception when compared with rivals.”
A menu is like a mattress. The more weight you put on a mattress, the lower it sinks. The more items you put on a menu, the lower the quality perception.
Whether it’s steak at a steakhouse, coffee at a coffeehouse, pizza at a pizza place or chicken at a chicken joint, the principle is the same. A specialist is usually considered to serve higher quality food than a generalist.
When McDonald’s was a hamburger restaurant, its hamburgers had a higher quality perception than they do today. Who’s to say whether they actually have declined in quality or not? In marketing, truth doesn’t matter. Only perception does.
What saves McDonald’s is its convenience factor and perceived leadership. McDonald’s has 14,098 domestic units, almost twice many as Burger King’s 7,212 units.
On average, a consumer has a longer trip to make to visit a Burger King restaurant than a McDonald’s restaurant. Burger King needs a reason for consumers to take the extra time to make that trip. And Burger King can’t win that battle by emulating the menu at McDonald’s.
It can only win by narrowing its focus and being the opposite.
Burger King should have trimmed its menu to burgers and related items years ago, which would have helped it live up to its name and differentiate itself from McDonald’s.
There are also other ways Burger King could have accomplished that goal. McDonald’s uses frozen hamburgers, so Burger King should have used fresh hamburgers. McDonald’s makes hamburgers in advance, so Burger King should have made them to order.
Compare Burger King’s extensive menu to that of Five Guys Burgers and Fries, which sells only burgers, hot dogs, French fries, and veggie and grilled-cheese sandwiches.
Yet Five Guys’ per-unit sales of $1.15 million last year were ahead of Burger King’s $1.12 million. In addition, Five Guys’ per-unit sales were up 2 percent last year, while Burger King’s per-unit sales were down 3 percent.
So if you were running Burger King, what would you do? Expand the menu? Or do the opposite?
The dozens of chief executives who have run Burger King over the past few decades have made the logical choice to expand the menu.
It makes sense that all a company has to do to become successful is to look at what the category leader is doing and then do it better. Or faster. Or cheaper.
It just doesn’t work.
Laura Ries is president of Ries & Ries, a marketing consulting firm located in Atlanta. She can be reached at [email protected].
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