ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, March 16, 1997 TAG: 9703140004
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: MEGAN SCHNABEL/ THE ROANOKE TIMES
FOR MORE than 40 years, Lydia Barlow has been a loyal supporter of the Golden Arches.
But now she's a defector.
These days, when the Roanoke nurse grabs dinner on her way home from work at the Veterans Affairs Medical Center, she stops at the Hardee's on Main Street in Salem. It's right across the street from a McDonald's. But at Hardee's, she buys fried chicken and biscuits and beans, items not on the McDonald's menu.
There's just something about a sliver of meat on a bun, she explained, that doesn't fill you up.
"We like hamburgers and all," she said. "But in the evening, when I get off work at 5 or 6, a lot of times we just don't want hamburgers."
And when you eat fast food as often as Barlow does, you want something that will stick to your ribs. Something you won't get sick of, even when you eat it five or six or seven days a week, as Barlow and her family - two kids, a grandchild and two nephews - often do.
She - and, she believes, the rest of her 35 to 55 age group - wants variety. She wants home cooking, the kind she'd make for her kids if she had the time. She wants vegetables, and baked potatoes, and chicken-based combo meals. But she also wants good prices, and she wants service.
Barlow is the kind of customer who keeps fast-food research and menu development teams up at night. The kind that recently prompted McDonald's to announce it will cut the price of its most popular sandwiches to 55 cents, with purchase of fries and a drink. The kind that sparks burger wars.
A drive down just about any urban or suburban thoroughfare makes it clear that fast food has become huge business in the United States. Some estimates place the number of fast-food restaurants at more than 42,000 nationwide. McDonald's, the largest, has more than 12,000 restaurants in the United States and another 9,000 in 100 other countries.
Americans last year spent 46 cents of every food dollar eating out, up from 34 cents in 1970. Virginians spent an average of $170 to $180 per person on fast food in 1992, the most recent figures available from the National Restaurant Association, a Washington, D.C., trade group.
But how much bigger can it get?
"It's hard for the market for fast food to grow in the U.S.," said Jim Brown, assistant professor of marketing at Virginia Tech's Pamplin College of Business. The domestic market
for burgers and fries is pretty close to being saturated, he said. "For any one company to grow, they're going to have to steal customers from their competitors.
"The pie is not growing; companies are now fighting over the size of their slices."
The number of fast-food restaurants is growing faster than sales, said Patrick Schumann, an analyst who follows the fast-food industry for Edward Jones in St. Louis.
Just look at the commercials for a taste of the battle tactics:
McDonald's is expected to go after price-conscious customers by offering 55-cent Big Macs as part of its Campaign 55. In recent months, it also has cut prices on Chicken McNuggets.
Hardee's, with its fried chicken and Monster burger and grilled sourdough sandwiches, is emphasizing menu variety and quality.
Burger King, with its retro-themed spots for 99-cent have-them-your-way Whoppers, is countering McDonald's price claims while also appealing to baby boomers' individualism.
The winner will be the one who offers the best quality, the best value and the best service, said Mike Grimm, who owns 27 franchised McDonald's restaurants in Southwest Virginia.
McDonald's commands more than 40 percent of the U.S. fast-food market. But the giant may be slipping. From 1995 to 1996, the Oak Brook, Ill.-based chain's restaurants lost 0.2 of a percentage point of market share, while sales rose 3.5 percent, according to the National Restaurant Association.
That's no disaster. But during the same period, McDonald's closest competitor, Miami-based Burger King, saw its market share grow by a full point. Sales rose 9.2 percent. Wendy's gained 0.3 percent of market share, and its sales rose 6.4 percent.
Warren Belasco, chairman of the American studies program at University of Maryland Baltimore County, where he also teaches a class on American food, speculated that McDonald's has become complacent. "When you have such a large base to start with, there's a lot of leeway to fail," he said.
There's no room for complacency in today's changing market. While chains such as Wendy's and Burger King began catering to the aging baby boomers by offering more "adult" menus - featuring salad bars and specialty burgers - McDonald's stuck with its tried-and-true burger and fries strategy.
Susan Ariew of Blacksburg, a self-described baby boomer, said she used to eat at the Golden Arches, back when she was young and didn't have much money. But now she's willing and able to spend a few extra dollars to eat at Burger King - except when her kids demand McDonald's Happy Meals.
"If you have more buying power, you're going to be more picky," she said. "I was much less discriminating when I was younger. But we're talking about food here. Taste matters."
And, as reported recently in The Wall Street Journal, even McDonald's internal documents concede that taste tests conducted for the company found both Burger King and Wendy's beat McDonald's.
According to the newspaper, McDonald's documents show a 3.5 percent decline in U.S. sales for restaurants open at least a year. Breakfast sales, once the domain solely of McDonald's, dropped 5.4 percent last year.
Campaign 55 - named for the year McDonald's was founded, 1955 - is a response to a need to "jump-start" the Oak Brook, Ill.-based company, said chairman Jack Greenberg.
Locally, Grimm said his Roanoke-area stores' market share increased by several points, and sales grew as well, although he won't give supporting figures. "It's hard to compare 10,000 restaurants nationwide with the Roanoke Valley," he said.
The promotion will begin April 5 with lower prices on selected breakfast sandwiches. Later that month, the price of the Big Mac will drop. The promotion will rotate from sandwich to sandwich.
Franchisees can set their own prices, so not every McDonald's will be offering cheaper burgers. But all 16 franchisees in Southwest Virginia - accounting for 57 stores - will be part of the promotion, Grimm said. Other Southwest Virginia franchisees contacted for this story did not return telephone calls or referred questions to the company's corporate headquarters.
|--| Sharon Hamilton, director of public affairs for Rocky Mount, N.C.-based Hardee's, said it's too early to speculate on what McDonald's promotion may mean for her company's business. Hardee's and other major chains have vowed not to slash their prices in response to Campaign 55.
But Burger King, which has offered 99-cent Whoppers for nearly three years, recently has begun heavy promotion of the deal to show that it goes head to head with McDonald's on price.
And Hardee's, with 3,200 restaurants nationally, long has been dug in for a fight. The chain's sales dropped more than 10 percent from 1995 to 1996, according to the National Restaurant Association. The company is concerned, naturally, Hamilton said. But November and December 1996 figures show an increase in same-store sales that coincided with the implementation of a new company strategy: to focus on quality and taste, rather than on price alone.
Consumers have a lot of choices, she said. There always will be those who are driven solely by pocketbook issues. But value, which is even more in demand, is not just about price, she said. "They want to go to the restaurant that gives them the best-tasting food, and quick service," she said.
So will the 55-cent promotion help McDonald's regain its sliding market share? Grimm said he hopes so. It's tough, though, to predict customer reaction. "I don't know," he said. "We've never done something like this before."
The market likely will judge the promotion's success on whether sales figures rise and market share stabilizes, Schumann said. But the company also plans to focus on bringing speed, service and cleanliness back up to the standards that made it the market leader, he said.
"They're trying to make this a longer-term project," he said.
Lower prices will draw customers in, he said, but to keep those consumers, McDonald's must prove it has changed its whole operation.
Many of the customers who responded to a recent Roanoke Times InfoLine question are skeptical. Having to buy fries and a drink makes the promotion less of a bargain, they said.
But Grimm said he needs to sell the high-margin sides to break even. It costs him about 60 cents to make each Big Mac he'll be selling for 55 cents. At Roanoke-area McDonald's, Big Macs have been selling for just over $2.
"If the customer count doesn't increase, it's going to be very hard," he said.
And starting next month, McDonald's will offer Quarter Pounders - which normally cost about $2 - for 99 cents, with no additional purchase required, he said.
|--| According to the National Restaurant Association, hamburgers - and all the numerous variations thereon - remain the most popular fast-food purchase. And McDonald's, with its 40-plus percent market share and 12,000 restaurants, is still king of the niche.
"They were the first," said Tech's Brown. And that always has advantages. "It takes awhile for competitors to catch up, and for people to change their habits, once they're ingrained."
Pat Jasper of Buchanan, who teaches sixth grade at William Clark Middle School, said her students are eating more fast food than ever before. And most of it, from what she hears, comes from the Golden Arches.
"I think their first thought is McDonald's," she said. "That's what they associate with fast food."
LENGTH: Long : 174 lines ILLUSTRATION: PHOTO: Eric Brady. Lydia Barlow (second from right, back)by CNBprefers to go to Hardees because it offers more than burgers. With
her are (front) Justin Dillard. (Back, left to right) James Barlow,
Desmond Shannon, and Selena Shannon. color.