Earlier this year, burger behemoth McDonald's Corp. made one of its most significant forays into price cutting and is now seeing its effort faltering.
These two developments suggest we should take a new look at the question posed in this space March 17: Do the experiences of fast-food operators hold a lesson for supermarkets' food-service tactics?
More and more it would seem so, but first let's quickly update what's happening at each of these quick-serve companies.
McDonald's price-cutting gambit, Campaign 55, was led by the offer of a sandwich for 55 cents with the purchase of full-price fries and drink (and some other complexities). Campaign 55 wasn't working and McDonald's cancelled the sandwich offer last week. A 55-cent breakfast promotion remains. Same-store sales numbers at McDonald's were off by perhaps as much as 5% last month, and its stock has been in decline. Maybe it's no coincidence that sales at rival Wendy's climbed to historic highs last month. McDonald's refugees may have landed there, and tried out Wendy's new pita sandwich, too.
The lesson: An ill-focused promotion hurts, especially when it's coupled with a lack of innovation and a static product.
At Boston Chicken, franchiser of Boston Market quick-serve restaurants, things aren't going swimmingly either. Sales have been fading at Boston Market in large part because the chain dropped countless coupons intended to build its lunch trade. The coupons worked with a vengeance: Customers came in and bought lunch items at a deep discount, but took them home for dinner; Boston Market cannibalized its own profitable dinner business. See Page 15.
Now under consideration is the rollout of chilled entrees in the hope that lunch customers will buy them, then take them home for dinner. Maybe that will work, but it's not the product line that built Boston Market -- namely hot, ready-to-eat meals. The bad news is that customers see chilled and hot meals quite differently.
Related events at Boston Chicken include an executive shakeup, a plan to lay off 115 headquarters employees (23% of the staff), a possible pullback in store-development plans and a steep decline in share value.
The lesson: Excessive price cutting erodes business, strips product of its intrinsic value and activates experiments that could lead a company astray.
The proper supermarket strategy for winning in the complex food-service environment was expressed, in a way, by James E. Ukrop, vice chairman and chief executive officer of Ukrop's Super Markets, during a talk he gave at the Food Marketing Institute convention in May.
He related that Ukrop's increased the price of rotisserie chicken by $2 each and saw sales increase. Why? Unlike the two quick-serve operators we've looked at, Ukrop's was able to offer a quality product to the right customers and in the context of lively merchandising. Ukrop's needed to get a certain price to be able to present these attributes, and its customers were glad to pay for the package.
The lesson is that competitors' complex price games are forcing an opening into which supermarkets can drive straightforward, value-driven initiatives.