2. Challenges confronting the hamburger industry

Challenges confronting the fast-food industry threaten its balance. Burger King and Wendy’s are taking away the market share of McDonald’s, and indirect competitors have improved their marketing strategies and products so that hamburgers are no longer supreme. McDonald’s, once referred to as the ‘golden arches’, is now cited by some as the ‘fallen arches’. To make matters worse, a deep-discount program called Campaign 55, failed. Taste tests demonstrate that consumers like Burger King hamburgers more than McDonald’s and that Wendy’s has a better menu. [11]

Consumers seem to like Starbucks for coffee and bagels in the morning and are patronizing Boston Market more for dinner. Furthermore, supermarkets and food stores with take-out meals are taking away significant market share from the hamburger industry.

Mid-price family restaurants are providing growing competition for hamburger chains. Prices at these mid-price establishments average no more than three or four dollars more than at most fast-food outlets. Moreover, surroundings are comfortable and attractive, and there is table service.

It is anticipated that baby boomers, two-income couples and the increasingly older population will patronize these mid-price restaurants, and that will damage hamburger establishments. Steak houses have also made inroads into the hamburger industry by selling burgers.

As a result, franchisees are in rebellion, besides consumer tastes are changing.

2.1 Conflicts between franchisers and franchisees

Tensions do arise between franchisers and franchisees. Since the franchisee is not an employee but an independent owner, franchiser controls can be viewed as too rigid. The franchise agreement frequently contains a buy-back point, and franchisees might fear that the franchiser will exercise this option because of higher profit potential. Another source of conflict is that restrictions on product purchases might cause franchisees to believe that franchisers are charging higher prices and that product assortment is too limited.

Many franchisers own a number of their outlets, and some of these units compete with those owned by franchisees. Efforts are made to avoid the problem of dual distribution, but these attempts are not always successful. Moreover, the reaction to field services and operating controls is not always positive. Franchisers have tended to rely on field representation to reconcile any differences, but these field representatives are not only responsible for field service and liaison with franchisees, but also must recruit additional franchisees. Consequently, franchisees may complain that field representatives pay too little attention to franchisees’ management problems.

Potential negative franchiser actions include agreement termination, the reduction of promotional and sales support, insufficient territorial protection and poor business practices. McDonald’s dominates the fast-food industry, so its standardized, routine practices can be rigidly enforced. This may not be so true with franchiser-franchisee relationships in other industries.

Franchisees of McDonald’s are not only cranky but mad. Franchisees are cranky because profit margins are eroding and Campaign 55 failed. Since McDonald’s reduced the price of its flagship burger to 55 cents, sales actually fell. Franchisees explained this by the fact that consumers were confused by the rule that french fries and a soft drink must be purchased to qualify for the cheaper sandwich. Many franchisees predicted that Campaign 55 would not do well and tried to prevent it, so now they believe that the company disregarded their valuable input. [9] And franchisees are mad because the McDonald’s expansion program has infringed upon trading areas, and established franchises are competing with new McDonald’s units.

Besides that, bottom-up marketing has hit some snags in the McDonald organization. Bottom-up planning involves assembling information from field personnel relating to products, operations, timetables and objectives. Despite a system of regional managers, information was difficult to transmit back to headquarters because of numerous management layers in the corporate structure. A more effective policy was to combine bottom-up with top-down marketing planning, with senior executives establishing overall objectives and policy, and sales, advertising and product personnel establishing plans for implementing the policy. What was needed by McDonald’s was an integrated operational plan.

McDonald’s is still McDonald’s, with one of the most powerful brands in the United States, but it must confront the reality of having direct and indirect competitors. The indirect competitors are the supermarkets, pizza restaurants and mid-price restaurants which provide varied menus at moderate prices.

Burger King increased its share of the adult fast-food audience with advertisements that its Whopper outweighed McDonald’s Big Mac; it also introduced a grilled chicken sandwich years before McDonald’s. Wendy’s continues to offer everyday value and diversify its products without engaging in a price war.

Meanwhile, Hardee’s has fallen upon hard times. Hardee’s last served its charcoal-broiled burger in 1985, switching to fried, a change that may have caused its downward trend. The charcoal-broiled burger was part of Hardee’s image, and that image was altered. Consumers who are health conscious might be more comfortable eating at Burger King or Wendy’s.

Some amount of conflict can be constructive, since it can lead to a more dynamic adaptation to a changing environment. On the other hand, too much conflict is dysfunctional. The problem is not one of eliminating conflict but of managing it better.