Back in August, CKR started to go after MCD by name when it warned “consumers not to fall for the McHype.” The burger war, which is thus far a one-sided battle, started with CKR saying, “The Original Six Dollar Burger at Carl’s Jr. has 24 percent more meat than McDonald’s Third Pounders, yet costs the same - $3.99. And at Hardee’s, the 100% Black Angus beef Original Thickburger has just as much meat as McDonald’s Angus burger, but costs 60 cents less. Those are the facts and that’s the value of our burgers.” Since then, CKR has introduced both The Big Carl and The Big Hardee, which it calls a counterpunch to MCD’s iconic burger, the Big Mac.
When CKR first launched this attack, I offered the following warning:
MCD can and will beat CKR at the advertising game if it so chooses. In the near-term, CKR may get some attention from its mudslinging tactics as everyone enjoys a good corporate battle! And, the money-back guarantee may increase trial at Carl's Jr., but in the end, MCD will likely win the battle as you can never underestimate the company's marketing muscle.
Along these same lines, Crain’s published an article today titled “McDonald's rivals launch barrage of ads attacking quality, price,” which discusses whether MCD should and/or will fight back as other competitors, including Wendy’s and Burger King, have joined CKR in going after their biggest competitor. Specifically, the article states, “Ads for Wendy's, Burger King, Hardee's and Carl's Jr. take direct aim at the quality of McDonald's fare. It's an unusual scrum of comparative advertising that comes as McDonald's U.S. sales slide and the battle for marketshare intensifies. Most of the ads call out McDonald's burgers or breakfast items by name — Wendy's alone stops just short of identifying its target — and all attack the quality, freshness, taste or price of McDonald's food.”
The article correctly points out that MCD spends more than twice as much on advertising as its fast-food rivals with MCD spending $856.1 million in the October 1, 2008-September 30, 2009 timeframe according to TNS Media Intelligence relative to BKC’s $316.5 million, Wendy’s $289.6 million and Carl’s Jr.’s $38.3 million. With this level of spending, I continue to believe that MCD can and will win this advertising battle if it so chooses. I don’t think MCD will go after its competitors by name because the fact that many of its peers are going after them only highlights its leadership position. And, relative to the article calling this “an unusual scrum of comparative advertising,” MCD’s CEO James Skinner would disagree as he said on the company’s 3Q09 earnings call that these types of naming names advertising tactics are “nothing new for us, by the way, just so you know, but we've consistently been providing Dollar Menu to our customers over the last seven or eight years. It's a consistent approach. We have value across our menu and we're very pleased with the customer reaction to our Dollar Menu and the expectation for us is to be able to stay the course on this and continue to communicate everyday affordability everywhere in the world really, not just here in the United States…But it's not unusual for our competitors to name names regarding McDonald's. We've been through this in previous periods and we will continue to take share and continue to grow and our Dollar Menu will be a big piece of that.”
In discussing whether MCD will fight back, the article raises what I think is the more important question about how the company will allocate its marketing spending going forward when it states “But every dollar spent on a defensive ad is a dollar that won't be spent on McDonald's other priorities: launching its national $1 breakfast menu, ballyhooing its new beef snack wrap and touting its ambitious lineup of fancy coffee drinks.” Without even considering the need to defend its name, I have concerns about how MCD will be able to continue to support its core menu while also promoting its McCafe launch. MCD has stated that it has been able to continue to advertise its core menu while also allocating more marketing dollars to breakfast and specialty coffee. The company did increase its total dollars spent, but lower media rates really enabled MCD to focus on both its core menu and McCafe launch in 2009.
As of the company’s 3Q09 earnings call, management stated that the trend of slowing media costs was already starting to slow and that pricing was beginning to move up. Specifically, MCD said that “the spending rate, the spending trend for [MCD] is if anything going up, not going down.” MCD’s decision to go aggressively after the beverage category diluted the company’s marketing message in 2009. I think this increase in media rates could make this more of an issue in 2010 and impact the company’s ability to continue to spend behind McCafe without giving up some level of spending behind its core menu, which drives the bulk of MCD’s business.
Add to that the fact that MCD has already said that it will launch a Dollar Menu at breakfast supported by national advertising. We also know that the company will be completing its rollout of frappes by mid-2010, which will require media support. MCD said at its November analyst meeting that it will allocate more advertising dollars to its Dollar Menu (to 15%-20% of resources from its current 10%-15% level). This increased spending behind the Dollar Menu could include spending behind the launch of the Dollar Menu at breakfast, but management had not yet announced that it would be launching the Dollar Menu at breakfast when it made this comment about advertising spending. Then, there is the Angus burger which was launched in July, which might require increased marketing support. If MCD then also chooses to spend to defend its name, some part of the menu will suffer from a marketing support perspective.