Cancel the funeral for fast food. When McDonald’s revealed their same-store sales growth and revenue for the first financial quarter of 2017 this past April, the numbers surprised even their own CEO. In just a few months, the golden arches earned $5.68 billion in sales (beating their $5.53 billion expectations) and their domestic same-store sales growth had risen 1.7 percent, a far cry from the 0.8 percent decline the company had anticipated.
In a dining landscape that more and more frequently favors fresh, local ingredients and farm-to-table menu concepts, these numbers are thrilling for the overcrowded and much-maligned fast food industry. Such growth is a reminder to other fast food restaurant chains that in an age where customers have more dining options than ever, the industry must think outside the box in order to set themselves apart. For McDonald’s, that means focusing on four pillars (menu innovation, store renovations, digital ordering and deliver) in order to retain long-time customers and re-introduce themselves to consumers that moved on a long time ago.
In their successful first quarter of 2017, McDonald’s attempted to capture attention in an increasingly overcrowded marketplace with big announcements and enticing limited time offers. The company announced that they would no longer be serving frozen beef patties on their burgers (something other burger juggernauts like Wendy’s have been claiming to offer for years). McDonald’s also rolled out three different sizes of their classic Big Mac, offered $1 soft drinks and $2 McCafe beverages, and expanded all-day breakfast offerings. In other words, smart uses of LTOs and a commitment to healthier options, along with the value and convenience that a fast food restaurant represents, are doing their part to save Ronald and his pals from extinction.
The industry isn’t slowing down; if anything, they’re doing everything they can to grow, evolve and stay relevant.
How fast food keeps getting off the mat
A huge part of the fast food industry’s success on both global and domestic levels is the familiarity and comfort the restaurants provide. Consumers can walk into the Pizza Hut down the street from their house or one in Hong Kong, for example, and have a similar experience; they know what they’re getting themselves into. In an age where consumers have so many choices, that comfort can go a long way. The reasons fast food became a dominant part of the food landscape in the first place hold true – people want food quickly and cheaply. It doesn’t matter if that food is processed or higher in calories than a health-conscious population would perhaps like it to be.
Such reasons, and many others, are why the U.S. fast food industry grossed $200 billion in 2015. That is a far cry from the $6 billion the industry earned back in 1970. The industry isn’t slowing down; if anything, they’re doing everything they can to grow, evolve and stay relevant. That desire for relevancy includes going after the most coveted marketing demographic: millennials. Fast food chains have joined the home delivery bandwagon, partnering with companies like Postmates to bring their cheap and convenient eats to consumers’ homes.
Don’t bury me, I’m not dead yet.
Recently, McDonald’s released some inspired advertising targeting that same demographic. The company tapped actress Mindy Kaling (the internet’s best friend) to star in a series of commercials. The twist? The ads never once mention the name of the restaurant they’re promoting, focusing instead on aspects of the recognizable brand that we know to be true. The ads prove that McDonald’s has the name recognition and savvy to evolve with the times and make their case for continued relevancy.
McDonald’s recent successes are proof that the fast food industry is not dead, nor is it going anywhere anytime soon. The upward tick in the industry will likely continue, but only if restaurants take big steps to change and grow with the dining landscape. What’s gotten them this far won’t take them any farther, and the industry would do well to remember that.
[00:00:05] Adam Pierno: Welcome back to another episode of Food and Restaurant Marketing. I am Adam Pierno. With me today again is Dan Santy.
[00:00:14] Dan Santy: Hello everybody.
[00:00:15] Adam: Welcome back. Are you excited?
[00:00:18] Dan: Always.
[00:00:19] Adam: Are you ready?
[00:00:20] Dan: I’m always.
[00:00:21] Adam: This is something we people get very fired up about. This topic I may end up with a black eye or a busted lip, I’m prepared.
[00:00:29] Dan: Why are they giving it away Adam?
[00:00:32] Adam: Why are they giving it away? Would you like to talk about the topic today?
[00:00:36] Dan: Offers and discounting, stop yourselves. Stop yourselves.
[00:00:40] Adam: [laughs] Well, there’s probably a time and a place, I would imagine.
[00:00:47] Dan: There is. I’m always the contrarian on discounting, I always will be. I don’t think it’ll ever go away. I marvel at the flyer in my mailbox almost every day. Clearly, it’s working on some level and achieving some level of results for many, many customers — many, many, many restaurant brands. But I just think it’s so antiquated. When I look at — every so often I look through that flyer and I’ll just see what are they doing and it’s the same thing over and over and I marvel at it. Here we are 2017, essentially right? We’ve had 20-plus years of the internet, digital marketing is just exploding, it’s about ready to blow past television and spending et cetera, et cetera. But yet, every week we get and wake up, sometimes a couple of times a week, I get this free standing insert (FSI) in my mailbox with literally dozens upon dozens of companies giving stuff away.
[00:01:56] Adam: It’s amazing.
[00:01:57] Dan: Yes.
[00:01:58] Adam. It’s amazing and I think it just takes discipline for companies to do it right, like anything.
[00:02:03] Dan: Always.
[00:02:04] Adam: Like anything we talk about. Let’s talk about what the challenges. Really, we want to split up two things; Discounting which Dan hates versus Offers and knowing when to use each and they’re different levers you can pull, there are different amounts you can discount. There’re different ways to break up things and making offers or feel like offers or look like offers that maybe aren’t really offers or they aren’t really discounted.
[00:02:29] Dan: My favorite.
[00:02:32] Adam: One thing we’ve seen this with some brands that we consult with, where they get into a discounting cycle and essentially the customers are trained to wait for that discount. They do not come in until they get the coupon from the FSIs or from the internet or whatever it is they are trained to wait for that coupon.
[00:02:52] Dan: Unequivocally, that’s the thing that drives me absolutely [unintelligible]. How many brands have we consulted with Adam where they show up and we start working with them and we see that they’re using the discount drugs, it’s like heroin right? and I always get the same story. Yes, but we’ve got to comp over last year and we did a coupon –
[00:03:17] Adam: Yes, and we do sympathize with that.
[00:03:18] Dan: – and I get that again, but that’s false. I said this before in our loyalty discussion about we’ve got people to answer to. Might all our clients have people to answer to whether it’s straight to the C-suite, PE, for whatever the case may be. We get it. We’re not ignorant to that fact. But we also know that we have successfully helped brands wean themselves off –
[00:03:44] Adam: Short-term pain for a long-term gain.
[00:03:46] Dan: Exactly, and listen, forgive me but I use this drug analogy but that’s what it’s like. You’ve got to wean yourself off. You can’t just turn it off one day. I mean, technically you could, but we don’t necessarily recommend that. What we try to get our clients to do is wean themselves off of that and demonstrate tested optimized. Demonstrate how we can help them lower their reliance on discounting.
[00:04:15] Adam: Yes, if you just turn it off. Traffic will drop off the face of the earth when the discounts are due. That’s not a correlation, that is just a hard connected fact.
[00:04:27] Dan: Exactly.
[00:04:28] Adam: If you’ve been doing hardcore discounting, you no doubt have built up an audience of people that are coupon clippers and when you stop that, the flow of coupons, the lines of people will stop pulling into your parking lot –
[00:04:41] Dan: Correct.
[00:04:42] Adam: – It’s a given.
[00:04:43] Dan: Yes, and agreed.
[00:04:44] Adam: Let’s talk about what customers see in the marketplace than when they are seeing your offer or your discount and how you can vary those things. We break them up into three different things; Discounts which we’ve already talked about. That’s your standard coupon where it’s a BOGO or I’m giving something away and I’m actually cutting my margin by doing that–
[00:05:07] Dan: Cents off.
[00:05:07] Adam: Cents off, yes, or more, sometimes. Offers. On offers, an interesting thing, we subscribe to the notion that an offer is really just a way if you could re-package the same thing that you already sell and just remind them that it’s there and by putting a price point, even if you have an entree that you sell for $16.95 on any given night and you put it with the same price point $16.95, it will appear like an offer. It will appear as a discount to the consumer.
[00:05:40] Dan: Especially if the imagery, the messaging creates crave-ability. It really can become a branding opportunity too. Here’s this beautiful 6-ounce New York or fillet, I’m just picking on that for maybe a casual dining restaurant that serves steak and you have that $16.95 price. It’s like, “Man, that looks good” and it doesn’t sound terrible.
[00:06:13] Adam: Now, let’s talk about price. It’s not here in our notes but we’re really strong believers in there’re some price point barriers that if you can get something under $10, that if you can hit $9.95, you’re going to sell more. You’re going to see more traffic, we know this. This is not anecdotal, this is not a guess. We know it. We just watched it happen and so many times we see, when we were working with brands and consulting we say, “Just give us three menu items that can get to that price point and let’s work with option, let’s work with food and let’s get to work with culinary and get the portion size right. They go, “Well, we really can’t do that or our bestseller is this version and it’s only $12.95.” Look, $12.95 is good but $9.95 is better. It’s the magic number.
[00:07:03] Dan: Yes. That’s like a $5 price point now or I think it’s even come down to four bucks maybe? But I think it’s $5 now that all the QSRs have out there. I see Wendy’s doing it and Taco Bell –
[00:07:14] Adam: Yes, the $5 number is back.
[00:07:16] Dan: Yes and that’s for the QSR and then casual-dining. Adam’s right. That $9.99- $9.95 is magical. Again, this is a hard business man, we get it. We understand your business so well. We know how hard it is slogging it out every day and you’ve got — Adam brings up a great point, is you’ve got to work with the integrated team of Finance ops and culinary, whoever that is in your organization, to create the best program that will actually attract guests and make them feel, like if it’s an offer, that they really are getting a good deal.
[00:07:57] Adam: Right and you’ve got to reset those expectations. The next kind we talk about discounts and now we just covered offers. The last kind is your LTO, so those are your Standard Limited-Time offer. Now again, this is all a matter of perspective, so a lot of times when we talk and we say, “Well okay, we think news is good.” If we can do something with your menu to create some news. Let’s talk about an LTO the pushback that will get again, is it from culinary or from OPS and they say, “Well, training the staff on this or that is really hard.” It doesn’t have to be creating an entire new subcategory of your menu. Sometimes it can just be combining things in a different way or changing out cheese or something very simple that all of a sudden takes it from the regular burger to the power burger. The spicy hot version of the same burger because you put pepper jack cheese on it which right now would be a great deal.
[00:08:53] Dan: Exactly and what I love about LTOs is that you are reminding people about why they love your brand and giving them a reason to come in. Discount by itself, sorry, is not necessarily a reason to select you. It can perhaps motivate certain customer basis, that high-discount customer, high volume discount customer. But the LTO has a broader swath of reach when you put that out there. Adam’s absolutely right. Flavor profile enhancement, a unique twist on a product, whatever. The interesting thing to remember is that I believe we saw some research and correct me if I’m wrong, where it’s like people were told, “Hey come in for this exotic hamburger” and they just ended up ordering the cheeseburger anyway.
[00:09:50] Adam: Yes, that’s from the Counter — yes.
[00:09:53] Dan: Yes. It’s interesting, but if that advertisement, that limited time offer was the driver to get me to your parking lot, well then, it’s done all the work it needs to do. I don’t need to order it.
[00:10:08] Adam: That’s right. Then I think that applies to offers as well.
[00:10:11] Dan: Right.
[00:10:12] Adam: What we love about offers is, as Dan said, is credibility. Sometimes you just take your best selling item and you re-package it as an offer. People are waiting for that reminder about your concept, what they like about it and you’ve showed them what they love about it. You’re not bringing in some new crazy menu items that doesn’t make sense. You are saying, “We sell hamburgers. Here is a great hamburger from us.” “Okay, I forgot about that. Now I want one.” Another really powerful thing about LTOs that I think is overlooked if we stay on the idea of a first casual burger, it gives you an opportunity to ride a trend. I mentioned a spicy trend. Both flavors are really popular right now and Sriracha is riding that wave. But vegetables and garden fresh is just heating up and there’s more and more concepts coming out.
We know that Smashburger’s eventually is going to have to make a really strong play there, and LTO is an awesome way not only to get a vegetable based product. I don’t know what that would be. Not something beyond a veggieburger. But to test tender for once over the course of a year and figure out a new mix that they can create a menu that it will appeal and stop that veto for that vegetarian or that non-red meat eater each time. In LTO there’s a great way to get that attention and say, “Okay. I never thought of them like that.” Now they’re on trend for this strength trend that when I think about Zoe’s and think about all these better for your options, all of a sudden you can be aligned with it just through this LTO.
[00:11:47] Dan: Absolutely. Smart. Smart.
[00:11:51] Adam: When we talk about coming up with things that will stop a veto that’s another powerful reason LTO as an offers really work. Think about if you’re crafting those things, we’ve given you some thoughts starters based on some no votes that we get as we’re pitching ideas or as we’re presenting research to brands. Another thing is really understanding the audience that you want and figuring out what is the inertia that keeps them from coming in. If you try and just get a half extra visit a month, if you try win back customers who are lapsed, you know somewhere there is research that will tell you. If you’ve conducted the research or you need to conduct the research to know why they’ve lapsed or why you’re not getting that , where do they go for the next half a visit.
[00:12:38] Dan: Exactly.
[00:12:40] Adam: Craft your LTO to beat that.
[00:12:42] Dan: Exactly. Remember, we’ve got a client that I really respect a great deal because they dig in after an LTO runs. Typically run a 6 week window, Adam is that correct?
[00:12:57] Adam: That’s correct.
[00:12:59] Dan: They look at the penetration of that LTO. They look and see what was the sale through on that particular LTO number one. They look at the average ticket for that LTO and they have that historical data across many years –
[00:13:16] Adam: And by channel.
[00:13:17] Dan: – and by channel, that’s right, and by [unintelligible 00:13:19]. Is that what mean?
[00:13:20] Adam: No. By media vehicle.
[00:13:22] Dan: By media vehicle.
[00:13:23] Adam: They track it all the way down from every vehicle through redemption as much they can.
[00:13:27] Dan: Yes. That tells them so much about what to do going forward. It gives them standards. What are the sale through levels we want to see? When something performs under that they are like, “Okay. That LTO we’re going to put that thing at the back-burner or we’re just going to set it out to pasture.”
[00:13:48] Adam: That won’t be returning.
[00:13:49] Dan: Yes. We won’t bring that back. That’s another thing that we believe is very important if you adopt an LTO strategy. It’s to look at that limited offer and how well it’s doing. Again, the bash on the discounting for you. That kind of information is so valuable in forward thinking analysis. Discounting doesn’t give you that same depth of understanding because all you’ve got is this, okay well, a thousand people redeem the bogo[sp]. What have I learnt other than a thousand people redeem the BOGO.
[00:14:30] Adam: Right. You didn’t do anything interesting enough to have a finding from it or takeaway.
[00:14:34] Dan: Exactly.
[00:14:36] Adam: Another thing that you can be thoughtful about is you’re choosing a guidance for an LTO or just choosing items for an offer more than a discount. A discount is really how much margin can we stand to lose as loss leader to drive traffic. Let’s take that off the table. We know what that is. For an offer, think about the item that you’re offering and what people will order on top of it. We’ve seen a lot of offering really good deals on sides knowing that people are going to come in and order an entree or they’re going to add beverages, they’re going to add drinks, right? You can create the offer that looks like a really good value because you know where the off-sale opportunities are and your staff is ready to pounce on those ready to capitalize and say, “Okay. Now I’ve got your $13. I know I can get you to $18.” Your guests doesn’t feel ripped off from that.
[00:15:26] Dan: No. Especially don’t feel ripped off because they’ve made the decision. That new answer is so critical. When you’ve sold, you don’t have the same experience when you choose. A whole another level of experience is perceived.
[00:15:43] Adam: At that point you feel,” Okay. I’m getting a good deal so I don’t mind spending less. I’m buying something else at regular price and I still feel okay about it.”
[00:15:51] Dan: Exactly.
[00:15:52] Adam: Because the main thing I came in for was on sale or the least I thought it was.
[00:15:55] Dan: One of the point I want to bring up, I know that we talk about [unintelligible 00:16:00] and [unintelligible 00:16:02], I believe that’s the term.
[00:16:04] Adam: [laughs]
[00:16:05] Dan: But when you start talking about discounts with that audience I always think back to the research we did where we discovered that they’re making the decision to dine out within an hour of dining out.
[00:16:18] Adam: Less than that, yes.
[00:16:19] Dan: Yes, or even less than that. How does a discount work in that environment? I have to have had to put that coupon in my pocket or have it somewhere preserved. It has to be — If I’m making that decision from my home or from my office or from my car, or where I’m going to go, I don’t see it as a driver for that audience. I think they love some of the electronics stuff that’s happening in absence of what and what not. But in mobile wallets really it’s really important. If you’re going to go down that discounting route, please, please, please make sure you create the mobile wallet environment because –
[00:16:59] Adam: Make all the tools if you can to get into my phone.
[00:17:02] Dan: Yes. Especially if you think you’re going to make any in-roads with millennials.
[00:17:06] Adam: No, you are dead on. I tend to think of offers in LTOs with regard to millennials and now iGen or GenZ. It’s news. I’d like to use them as a level of news. That’s how we consult our clients to use them. Having that announcement about that product gives you permission to say something. Because otherwise it’s very hard to be relevant and it’s hard to have a meaning for me. If I’m in Facebook and I’m just scrolling through, why do I want to hear from this? Why do I want to hear from smash burger? Why do I want to hear and I know everybody is creating consent and trying to get infront of me. I’m just here to talk my air. I don’t know, but all of a sudden you have news, you have something to say. You got a new product or here is a new combination of things or “Hey, this is on sale.” I was like, “All right. I forgot about that.”
[00:17:58] Dan: Exactly.
[00:17:59] Adam: However you can use news and I’m picking on Facebook but whether that’s done on TV or other digital channels that’s fine. But you have to find ways to be relevant and sometimes that’s kind of manufacturing something. Like an offer on LTO.
[00:18:13] Dan: Yes. Kudos to McDonald’s and how they leverage the news of breakfast all day.
[00:18:19] Adam: And now they’re doing it again with the McRib. The McRib is back and they’ve been pretty smart about rolling that out and making it feel exclusive and they’re doing a good job.
[00:18:30] Dan: I think it’s been around for, what? 30 years. I almost remember that when I was in high school or something the McRib. It’s really amazing how they have successfully let that be that LTO. In this case, it’s not even an offer. It’s just a limited time offering.
[00:18:47] Adam: It’s a true LTO. It’s once a year if that. I’m pretty sure it’s every year but the whole thing about that is it’s supply because they can’t get the supply. That’s why they make it once a year. That’s what drove it originally to be an LTO.
[00:19:02] Dan: Interesting.
[00:19:03] Adam: It was a test item and they couldn’t roll it out full time. I think it works better for them as an LTO. I think it actually creates that news, then it goes away and then next year I’m excited about it when it comes back.
[00:19:12] Dan: Talk about a reason for a lapsed visitor to make their way back. I love that McRib and nobody else has it. Every year I do that. It works on a number of different levels.
[00:19:28] Adam: It’s a great example of what we’re talking about, finding a way to make news. You’re right, all day breakfast was another thing that they did where people had been begging for it for three years. It seems like just so stupid. Why can’t I get breakfast at 10:45? When they did it I think they did a good job of doing it right and really sticking it back into Taco Bell’s face. You want to have breakfast fight? Let’s have a breakfast fight.
[00:19:54] Dan: And now they’ve, from my understanding, they’ve actually rolled it’s like almost the full menu.
[00:19:58] Adam:: It’s a lot of the menu, yes.
[00:20:01] Dan: It’s funny to see the followers coming along, so you saw Jack In The Box, saying they’re doing brunch.
[00:20:09] Adam: Brunchfast?
[00:20:09] Dan: Yes, Brunchfast.
[00:20:11] Adam: I’ll take it.
[00:20:12] Dan: They’re trying to compete now, now they’re trying to stay up with the gorilla.
[00:20:18] Adam: Well, now yes. At this point, now everybody has to do it now. It’s become table stake, so McDonald’s set the agenda. Whether they were goaded into it a little bit by a Taco Bell. How often do you think regular presentation of on an LTO or an offer makes sense before an audience gets desensitized. If we’re saying it’s newsworthy, do you have any thoughts on regularity or cadence?
[00:20:41] Dan: I think back to our client that’s been doing it for a while now, meaning a number of years, and doing it successfully. I think that’s that four to eight week window, depending on who you are as a brand, what kind of frequency you currently get from your customer. I think that that window is a good window, and again, it comes back to what you said earlier, that it’s a news bulletin. It is a news bulletin about your brand, and it keeps you in — you get a share of mind, with that new piece of news, which all of a sudden gives you a potential access to share of stomach.
[00:21:27] Adam: You know that what we found is that the cadence of the LTO’s offers, is probably directly related to the frequency of visits. However much you’re trying to amp that up, if you’re a once-a-month-place, then you can probably get away with every other month, in having an offer, and if you are that last over that time, and if you’re at once-a-week place, then you might be able to do it much more frequently, because you’re trying to keep that pace up, or you’re trying to get people excited to have that time on the experience curve, where they get some new wrinkle every time they’d come in, that makes them come back next time. Otherwise forget it, they start getting bored, and they’re done.
[00:22:01] Dan: Yes. It does another thing too, is like if you get bored with a place and I can, I said this earlier, you get bored of a place. “Oh, I keep having the same thing every time I go,” so it becomes a reason not to go back, and it reduces my frequency. But the LTO, it gives me a reason to come in, I may still get what I always get, because that’s just who I am as a human being.
[00:22:29] Adam: If you saw, you would have some new stimulus, and it created a new memory for you, and then you had something new to tell somebody about it –
[00:22:36] Dan: Exactly.
[00:22:36] Adam: – which, amen. All right, last question on this is, how far out are we planning these things, how far out are we leading LTOs and offers, before they actually hit the market? The answer is as much time as you possibly can, and the reality is, just try to do in fewer than two weeks, or longer than two weeks. Frequently it seems like they come up as a rush, we know that planning these things out a year, six or eight months out, and having everything figured out before, is really what we target. Then make sure that the operationally everybody is trained up and ready to go.
[00:23:11] Dan: You can have that discipline, it ensures, I shouldn’t say it almost ensures success, but it elevates the possibility of success the further out you work, because in the creative can be better, the channel selections can be better –
[00:23:30] Adam: The execution that –
[00:23:31] Dan: Everything about it.
[00:23:32] Adam: – and operation level can be better, and we know that so much of it comes down to training. If you have a new, if it’s a true LTO where there’s a new menu item, and that means a staff has to learn how to prep it and how to serve it and how to sell it. Well, you just can’t bang that stuff out, if you want it to be excellent, you have to do it. We had an engagement with a fast-casual Asian brand, and they were rolling out a new menu item, which was a whole new category for them essentially. Watching how that testing went, and going in and seeing it in the field, and then seeing like, ” Rr, this is wrong.” We experience what the test was like, and then we saw it tested in market, and it was way off, and they rushed it, they rushed it just to get it out there. It takes time to do that stuff right and make sure that everything is operating on all cylinders, because if it is the true LTO, and people are trying, new based on it, it has to deliver. It has to deliver on whatever you promise, or you just had to keep those things in mind when you’re crafting what the LTO should be.
[00:24:36] Dan: Couldn’t agree more.
[00:24:38] Adam: All right. Well, I think we’ve beaten this one into the ground, what do you say?
[00:24:42] Dan: I think we have, there’s a few more things I’d like to say about why you shouldn’t discount for. I will restrain myself today.
[00:24:50] Adam: We will, there will be an amendment to this episode, so look for the amendment.