Burger King vs. McDonald's
An analysis of the classic business rivalry and the future of the Burger Wars.
McDonalds vs. Burger King is a classic tale of business rivalry. Since the 1950s, the two fast-food giants have been battling out for market share in the ever-saturated fast-food market. The winner? Depends who you ask.
Most recently, the UBS Evidence Lab surveyed over 2,000 U.S. adults who visited a fast food restaurant at least once a month and found that McDonald's was the favorite by a wide margin in several different categories.
For research purposes (of course) I had to try the fan-favorite out myself.
Personally, not a fan.
Either way, the rivalry is a fascinating tale of marketing strategy, brand positioning and competition. In this article, I will break down the burger wars and look at what the future holds for the two fast-food giants. We will do by breaking down our analysis into 4 parts:
The Origins of McDonalds
The King Arrives
The Burger Wars
A New Flare-up in the Burger Wars
Let us begin by looking at McDonald's origins.
The Origins of McDonalds
McDonald's (McD) was started in 1940 in California by the McDonald brothers Dick and Max (McDonalds). The menu offered only a handful of products: cheese/hamburgers, shakes, fries and soda. Taking inspiration from industrial assembly lines, the brothers streamlined their small menu, reduced costs and launched their "Speedee Service System". Fast-food was officially born.
In 1954, Ray Kroc, a milkshake machine salesman, convinced the brothers to take him on as a partner. Ray was ambitious and wanted to upend McDonald's business model. Instead of the slow, controlled growth the McDonald brothers were looking for, Ray wanted explosive growth. More specifically, he wanted to move away from managing stores to a franchising business model, where he would lease stores out to franchisees. His vision was that the McDonald's Company would retain the brand and land, but would outsource the operations of the management too franchisees.
While the McDonald brothers were weary of the plan, they didn't stop Ray Kroc. In 1961, Ray bought the brothers out of the business and set up the McDonald's Franchise Realty Corporation, later to become the McDonald's Corporation. The company bought land, developed stores and would lease them out on long-term contracts to franchisees. Ray would charge variable rent depending on the store's gross sales.
Kroc opened more than 700 franchises this way across the U.S. in the following decade. By 1980, McDonald's had 6,000 restaurants and had gone international (@McDonaldsCanada).
However, McDonald's success did not go unnoticed - competition quickly followed.
The King Arrives
After a visit to McDonald's, Keith Kramer decided to start a competitor. He and his wife's uncle, Matthew Burns, bought the rights to an instant-grilling machine called the Insta-Broiler and launched Insta-Burger King in 1953 (Daszkowski). The appeal of Insta-Burger King was the quick and efficient way in which they made burgers, all thanks to their instant-cooking technology.
The first store was a resounding success, opening the path to franchising. Inspired by McDonalds, James McLamore and David Edgerton opened the first Insta-Burger franchise in Miami in 1954. They continued to grow their franchises across Florida and even upgraded from the Insta-Broiler to a Flame Broiler.
Even though Insta-Burger King was expanding, the company quickly ran into financial difficulties. McLamore and Edgerton purchased the national rights to the chain in 1959 and renamed the company to Burger King - starting the company as we know it today.
To differentiate themselves from McDonald's, the new owners, McLamore and Edgerton, decided to operate a slightly different franchising model. Instead of buying land and leasing it out, Burger King sold territorial licenses to private franchisees across the U.S. and did not have contractual restraints or controls on franchisee operations.
The lack of contractual obligations and controls quickly grew to a nationwide quality and consistency problem, among other problems. In 1978, the company restructured all their franchising agreements to follow franchising model set forth by McDonald's: Burger King would own the properties and lease them out to franchisees. Burger King would also have strict quality controls and contractual obligations.
The Burger Wars
Prior to 1980, both McDonald's and Burger King focused on positive marketing tactics to attract customers domestically and internationally. McDonald's differentiated itself by being family-friendly and Burger King focused on customizability. McDonalds introduced the iconic Happy Meal and Burger King launched its "Have it Your Way" slogan.
However, the positive marketing did not last long. In the early 1980s, Burger King fired the first shot in the Burger Wars when it ran a marketing campaign attacking the size of McDonald's hamburger (Simpson). Burger King then followed suite with a series of comparative advertising campaigns to draw attention to the poor quality of McDonald's products and the superiority of Burger King's taste and methods (Twisted Food).
Naturally, McDonalds retaliated. The market leader launched a counterattack in 1985 with a new burger, the McDLT, which was a direct copy of Burger King's best-selling Whopper but cheaper. The round of attack ads went on, using television commercials, billboards, print advertising and other media to assert the superiority of each company (Twisted Food).
While both McDonald's and Burger King were growing quickly during that time, the advertising wars proved unsustainable — they were too costly.
Pressured by new market entrants such as Wendy's and Starbucks and pressured by customers becoming more aware of what food they were eating, both companies were forced cut their marketing budgets. Although attack ads comparing the size of burgers, quality of meat, value and other factors were occasionally run, the two fast-food giants had other fish to fry. If they were to survive in the diversified and changing fast-food industry, the companies would have to attract customers who valued quality over convenience.
They'd have to turn inwards rather than attack each other.
The New Millennium
At the turn of the millennium, McDonald's started to feel the heat. The fast-food industry was over-saturated with restaurants, competition was fierce, and customers were moving away from the greasy, calorie-dense fast-food restaurants. As if that wasn't bad enough, in January 2003 McDonald's posted its first ever loss (Cunneen).
McDonald's needed to turn itself around.
McDonalds realized that instead of spending money on attack marketing tactics, they needed to differentiate themselves from Burger King. That is, McDonald's needed to focus on their brand positioning that would be their differentiating factor that would win customers over.
Most importantly, McDonald's needed to disassociate itself from grimy, outdated restaurants. At Jim Cantaloupo's (McDonald's CEO during the early 2000s) first investor conference, he stated that the company's vision was to provide "clean restrooms and hot food" at every restaurant (Cunneen). The vision was simple yet highly effective — investors and consumers alike understood the need. The clarity and simplicity of the vision helped McDonald's quickly cement its position as the market leader.
Meanwhile, Burger King was stalling. Between 2002 and 2004, Burger King revenue dropped by 1.3% and between the years 2001 and 2004, the fast-food chain only opened 8 restaurants worldwide (2004 10K). However, in 2004 Burger King decided it needed to re-invent itself.
The "superfans" the company had identified were individuals who went to fast-food burger restaurants about 16 times a month (5 of those at Burger King) and liked sports, movies, music and video games (Sainz, 2007). While often forgotten, it is extremely important to have a clear target customer in mind — which is exactly what Burger King did.
The company also introduced a new line of premium products, such as "premium" flame-broiled products with high profit margins, quality chicken products and salads (Sainz, 2007). Combined with their refreshed "Have it your way" marketing campaign, Burger King aimed to offer something for everyone.
The effort proved tremendously successful: Burger King's net income increased by 2860% between 2004 and 2007 (2007 10K).
Since 2008, both McDonald's have been strengthening their franchise networks, selling thousands of corporate-owned stores to independent owners (Carter, 2019). Both companies have focused on putting in place solid management systems which include marketing, brand and operations management so that franchisees can focus on providing superior customer service and delivery. As a testament to this change, in the summer of 2018 McDonald's restructured its field operations to become nimbler and focus on franchising margins (Jargon, 2018). The stock was up 4.4% on the news (Utermohlen, 2018).
The 1980s to the 2000s were defined by expensive, attack-style marketing campaigns. The early 2000s were characterized by slump in sales for both companies, until both companies managed to turn themselves around. Since 2015, both Burger King and McDonald's have been focusing on becoming leaner, more agile franchising companies. So what's to come? I believe we're going to see a new chapter in the Burger Wars.
A New Flare-up in the Burger Wars
It is no secret that pandemic has deeply affected the restaurant industry. While the quick-service industry tends to have bigger pockets (and are thus more resilient to macro-shocks), nearly 10% of fast of restaurants within the quick-service industry (McDonald's, Burger King, Subway, etc.) have had to close (Datassential, 2021).
Even though eating out is the second post-pandemic priority, I do not believe that the fast-food industry will see much of the dining resurgence (Kantar). Rather, I expect that diners will be rushing to smaller, independent restaurants with family and friends. As such, I would hypothesize that the fast-food industry will need 2-3 years to recover to pre-pandemic levels. Shifts in remote work habits may also push fast-food restaurants to focus away away from cities and into the suburbs.
Either way, I believe that the fast-food industry will struggle to remain relevant for at least a year after the pandemic. This struggle for relevance will open the way for a new wave of marketing campaigns. I expect to see more tense competition between McDonald's and Burger King as they fight to win over the post-pandemic consumers.
Changing Consumer Tastes
American fast food tastes are changing: customers are demanding healthier options. "Fast casual" restaurants such as Chipotle and Panera Bread, offering healthier options at a marginally higher cost to fast-food, have stolen market share from the fast-food giants.
Vegetarian meats such as Beyond Meat and the Impossible Burger have also recently flourished, forcing both McDonald's and Burger King to offer vegetarian burger products. To remain competitive in the changing market, both McDonald's and Burger King are going to have re-position themselves to offer more than standardized, predictable and unhealthy fast-food. They are going to have start marketing healthier offerings if they want to become market leaders within these new, changing tastes.
An example of Burger King running ads (indirectly) attacking McDonald's on new, healthier food categories
Burger King and McDonald's are market leaders in the fast-food category. However, much like what they had to do in the 1980s, in order to protect their market share from one another and from the rise of fast-casual restaurants, both companies will have to pursue aggressive marketing tactics. I would not be surprised to see another flare-up of the burger wars as a result. Who has the bigger bite remains to be seen.