Upfront 2003: Fast Food

Coming off a tough 2002, the biggest restaurant spenders, fast-food leaders, are unpredictable as war. Major industry trends point to continued battles for share of stomach, as casual-dining chains and emerging quick-casual chains, led by low-spending bakery-café Panera Bread Co., devalue traditional cheap-and-fast food brand equity.

The burger segment grew 3 percent last year before inflation, while non-burger sandwich chains (Subway, Arby’s) grew 12 percent, according to Technomic, Chicago. Bakery-cafés, led by Panera, rose 30 percent. Doughnut chains like Dunkin’ Donuts and Krispy Kreme grew 12 percent, while the researcher’s “other” category, including Starbucks, gained 12 percent.

More stores and generally unchanging per-store ad rates could spell a shift, evidenced by Subway’s $218 million media spend last year, up from $176 million in 2001, as the chain hit the 13,000 store mark (outnumbering McDonald’s) and as domestic sales climbed 16 percent to $5.2 billion.

McDonald’s shaved media spending for the second consecutive year, from $629 million in 2001 to $537 million last year, per Competitive Media Reporting. Mickey D’s continues to combat off sales with cost-cutting, even as a new post-“Smile” campaign prepares to air.

Analyst Mitch Speiser of Lehman Brothers, New York, characterizes the regime of ex-CEO Jack Greenberg as “set on unit growth, deals and toys, and not reinforcing competitive advantages and brand equity.”

The November-to-February burger war isn’t likely to be repeated due to commodity-market dynamics that have beef prices rising as summer approaches. A likely shift to premium sandwiches would make Wendy’s, the quality-perception leader, “a particular beneficiary,” says Speiser. Wendy’s ended 2002 with positive sales but went flat in the first quarter. The company’s relatively steady management and strategy puts spending plans on more solid footing than its larger rivals. Wendy’s likely will up spending this year, particularly on promoting its kids’ meals, an executive says. This would follow a spending boost from $231 million in 2001 to $270 million last year, when the brand bowed its first national Hispanic campaign and hiked late-night 24 percent.

Pizza leaders Domino’s and Yum Brands’ Pizza Hut appear more concerned with ongoing promotional calendars. A Pizza Hut rep says this year’s spending will mirror last year’s. Yum siblings Taco Bell, whose spending rose from $180 million in 2001 to $195 million last year, and KFC, which went from $206 million to $224 million, may change creative. Taco Bell, following major menu improvements, enjoyed a 7 percent jump in same-store comps last year. Meanwhile, KFC ponders the fate of spokesman Jason Alexander.

The leaders in casual dining—led by Applebee’s, whose media spending amounts to $120 million, $70 million of that national, according to exec John Cywinski—are expected to see high single-digit sales increases. Applebee’s and Outback Steakhouse—which significantly increased ad spending this year to levels approaching $100 million, according to management—blazed a trail with their to-go meal ads. Brinker, parent of the Chili’s chain, spent $80.5 million on media last year.

“Relatively healthy” customer counts and average ticket will drive “accelerated sales growth” this summer, according to analyst Gerard Klauer Mattison, New York.

The role of media dollars is dubious across some of the most successful and emerging restaurant brands, though. Some of the most successful restaurant chains are also some of the lowest spenders on major media, as evidenced by Starbucks, whose U.S. restaurant sales increased 23 percent to $2.9 last year and whose consistently high same-store sales remained through the first quarter.

Likewise, spending is in the basement for brands in the emerging quick-casual sector, led by Panera, which is eyeing the 500 store mark with 30 percent store expansions. As that brand and others, including Wendy’s Baja Fresh and McDonald’s Chipotle, continue to expand, their use of traditional national media could increase.—

Primetime Network Spending in 2002: $938.8 million*
Hot Buttons: Burger segment unpredictable, as McDonald’s continues to cut spending. Quick-casual and bakery-caf? chains are up and comers.

Category: Fast Food
PERIOD: Jan 1, 2002 – Dec 31, 2002

Advertiser: Prime-Time Network TV $$$
Yum Brands Inc.: $288.8 million
McDonald’s Corp.: $273.5 million
Texas Pacific Group Inc.: $145.3 million
Wendys International Inc.: $134.2 million
Doctors Association Inc.: $102 million

Top Programs for Fast Food Advertising: Expenditures
The West Wing: $16.7 million
ER: $15.8 million
NFL Monday Night Football: $15.6 million
Source: Nielsen Monitor-Plus