Peep Insights: And the Winner Is…Fast Food

With the threat of decreased consumer spending and a weak U.S. economy, fast food chains have had the most to gain from value-driven, price conscious consumers. Brands have employed a wide range of strategies to reach consumers during a time when every penny counts.

Aside from the ongoing dollar or value menu wars, chains have stepped up their efforts to match each other on both menu offerings and prices. Following the success of McDonald’s “Snack Wrap”, KFC has aggressively pushed its “Toasted Wrap” and “Snacker” while Wendy’s has responded with “Chicken Go Wraps”. And the food wars have not been limited to classic fast food fare; Quiznos is offering its own “$5 Large Deli Favorite Subs” to go head to head with Subway’s “$5 Footlong Subs”. But undercutting all competition in price is Taco Bell, with value menu items starting at $.79.

While some brands are trading down, others have adopted a premium positioning during this rough period, hoping to improve their margins. Wendy’s has used its latest tagline, “It’s waaaay better than fast food”, to push more expensive products like its “Premium Fish Fillet Sandwich” and “Hand-spun Frosty Shakes”. McDonald’s has done more than upgrade its menu. It has been in the process of giving most of its 14,000 U.S. stores a facelift, adding new decor, seating, plasma TVs, and even fireplaces in some locations. To shake things up even more, McDonald’s is rolling out McCafes at all U.S. locations, offering specialty coffee drinks and their take on lattes and cappuccinos.

Another strategy that has helped chains offset a decline in domestic sales is overseas expansion. McDonald’s announced last Monday that same-store sales globally increased 7.7 percent for May, beating analysts’ expectations. While sales were up 4.3 percent at U.S. locations, total sales were bolstered by a 9.6 percent rise in Europe and a 9.7 percent rise in the Asia/Pacific, Middle East and Africa division. Sales overseas for the chain have been outpacing domestic sales for some time now. A recent WSJ article highlights this strategy, as more U.S. chains like Burger King and Papa John’s International Inc. are looking to international expansion for growth.

So as gas prices rise and the tough times continue, not everyone in America is suffering. While restaurants and upscale coffeehouses may be feeling the pinch, it seems that the glory days for fast food restaurants have just begun.

-Contributed by Robert Hsu of Peep Insights