McDonald's U.S. Marketing Plan in Question

By Patricia Commins

Reuters; 4th June 1997

Faced with disappointing U.S. sales, the world's largest restaurant chain scrapped the bulk of its 55-cent price promotion, calling its U.S. marketing strategy into question.

Under the promotion, known as Campaign 55, diners could buy a featured sandwich, like the Big Mac in April, for 55 cents when purchased with french fries and a drink. But the fast food giant found that customers just weren't biting.

"They have no coherent marketing strategy" in the United States, Everen Securities analyst Dean Haskell said.

"I need to hear a new business plan really soon. Which way are they going to go in terms of strategic direction?" Lehman Bros. analyst Mitchell Speiser said.

Going forward, McDonald's Corp. will have to go back to its roots, offering good-tasting hamburgers and french fries at a fair price, analysts and restaurant experts said.

"They need to focus on improving product quality. That is not something they can do overnight," Natwest Markets analyst Damon Brundage said.

McDonald's stock fell 50 cents to $48.125 in composite trading after the Oak Brook, Ill.-based company said late on Tuesday it was scrapping the promotion for lunch and dinner. It is returning to Extra Value Meal pricing, offering meal combinations starting at $2.99.

At breakfast, the Egg McMuffin and other breakfast sandwiches are still available for 55 cents when customers also buy hash browns and a drink.

Despite the disappointing results of Campaign 55, McDonald's remains the largest fast-food player with more than 12,000 U.S. restaurants and 21,000 worldwide.

"McDonald's is still the 600-pound gorilla in this industry with a 40 percent market share" among domestic quick-service restaurants, said restaurant consultant Ronald Steger, a partner at KPMG Peat Marwick LLP.

By comparison, Burger King, a unit of Grand Metropolitan Plc has about a 19 percent market share and Wendy's International Inc. about 11 to 12 percent, he said.

One possibility for McDonald's U.S. marketing strategy is to return to price promotions on a few key products, like its signature Big Mac hamburger, said Sanjay Dhar, associate professor of marketing, University of Chicago Graduate School of Business.

"The first thing is (McDonald's) needs to keep their pricing simple," Dhar said.

McDonald's Campaign 55 had been criticised as confusing for consumers since the only way they could purchase the featured sandwich for 55 cents was to also buy french fries and a drink.

Merrill Lynch analyst Peter Oakes said he expected McDonald's to unveil programmes to replace Campaign 55 in coming weeks, "most likely addressing the value initiative."

Price promotions have been at the centre of the strategy for competitor Burger King, which offers its Whopper hamburgers for 99 cents in some markets.

Wendy's has been trying to sell its product on taste, and most recently launched a line of stuffed pita sandwiches.

McDonald's tried to beef up its own menu last year with the Arch Deluxe hamburger that was aimed at adult consumers.

"The Arch Deluxe did not hit the target they were hoping to hit," said Dennis Lombardi, executive vice president of Technomic Inc., a Chicago-based restaurant consulting firm.

McDonald's has said it is testing means to improve food taste, and has hinted about a new chicken product.

"It may be time for McDonald's to re-engineer the menu a little bit," Steger said.

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