McDonald's is winning three-way fast-food fight, at home and abroad

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In its three-way food fight with Burger King (BKC) and Wendy's (WEN), category leader McDonald's (MCD) is finishing a tough year in the industry battered but victorious.

The company announced Friday that it will being offering an extensive dollar breakfast menu in January -- all the better to reach its cost-conscious customers (and, incidentally, destroy its rivals). Meanwhile, halfway around the world, Wendy's announced it's pulling out of Japan after 29 years. With McDonald's an apparently insurmountable force in the Land of the Rising Sun, the smaller chain is throwing in the towel.
Burger King has had its own trials right at home in the U.S., no thanks to a deteriorating relationship with its franchisees. In October, the company unveiled an interior design it plans to implement in every outlet that will cost $300,000 to $600,000 per store -- a bill the franchisees will pay. The chain has offered other profit-busting promotions that cannibalized the stores' bottom line and used controversial marketing -- including a "woman dancing in the shower" spot -- that left store owners furious and led Wedbush Morgan Securities to downgrade Burger King's rating late in November from neutral to underperform.

Trouble Overseas, Trouble at Home

Even for McDonald's, it's been a tough year for a category beset by attacks from health-food advocates, plummeting overseas revenues, fights with franchisees and complaints over tasteless ads. McDonald's tried to improve its image with slightly healthier, vaguely gourmet-sounding options, going so far as to offer a bun-less Big Mac: the Mac Wrap, with 190 fewer calories and eight fewer grams of fat than the classic model. McDonald's also announced this year it aims to replace its french fry potatoes with a new variety that won't consume so much water or pesticides.

But the industry's biggest problem may be its global strategy. McDonald's this year lost a copyright-infringement case to a Malaysia chain called McCurry, and it pulled out of Iceland, whose national financial collapse made its menu prices surge beyond the reach of its casual customers. The strengthening dollar this year also made McDonald's foreign revenues of the first six months look wholly unimpressive.

Cost-Conscious Consumers

A cheap menu at McDonald's gives it the category's advantage, DailyFinance's Dan Burrows recently wrote. With a national unemployment rate hovering around 10% and consumers unable to pay for expensive meals or to cook, the cheap prices are a good strategy. Critics and supporters alike cite the chain's incredibly low prices as an effective marketing push.

This is where McDonald's dollar breakfast menu will come in next month. And just as Mickey D's more or less imitated Dunkin' Donuts' successful breakfast menu, surely Burger King and Wendy's will follow suit to compete. But this game of follow-the-leader may not last long. The economy is still slow, the battle for fast-food bucks is still heating up -- and Ronald McDonald isn't clowning around.

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