September 26, 2008 Brand Power

Volume 4 | Issue 3

Fast food brands are on the fast track.

What recession? The strongest brands in the fast food industry appear to have shrugged off the threats of an economic downturn, rising global commodity costs, and slowing U.S. domestic consumption. As a group, the fast food industry grew its brand value by 27 percent versus the previous year, one of the fastest growing categories in brand value, and surpassed only by technology categories, according to our study: 2008 BrandZ™ Top 100 Most Powerful Brands. In fact, the category’s brand value growth was even faster than the previous year’s growth rate of 22 percent.

The industry faces no dearth of challenges, as if the macroeconomic malaise were not enough. Strong public criticism against obesity, anti-American sentiment in many quarters of the globe, and increasing competition from newer categories such as “fast casual” dining all could have provided enough threats to stymie the growth of any category. However, by applying strong brand management principles, the leading players have nurtured their brands even in difficult times, and the results have paid off. The group is led by McDonald’s, which is the number-one ranked brand in the fast-food category, and has even catapulted into the top 10 of the overall global brands list, ranking number eight across all categories, with its brand worth $49.5 billion, having grown 49 percent in value.

The results prove the power of brands to create value and provide resilience in a tough economy. Brands create an emotional loyalty with their customers, thereby influencing their decision to select a fast food place, and hence, assuring a stream of future cash flows. Strong brands also provide the opportunity to charge a price premium in certain cases, as evidenced by Starbucks and Tim Horton’s – two of the brands with the highest brand contribution (score = 4) in the category, i.e., the degree of emotional bonding that a brand has with its consumers. Operationally, strong brands also enable more favorable terms against suppliers, and provide greater political and commercial clout when looking to expand abroad.

CREATING BRAND VALUE

So what have these companies done to create brand value this year? One of the unshakeable tenets of brand management is to never lose sight of the customer, and the leading brands have demonstrated this in full measure. One particularly successful strategy throughout the category has been the focus on healthier fare. While Subway has always had a “better for you” positioning, McDonald’s, KFC, and Wendy’s, to name a few, are all jumping in, and are in various stages of introducing foods cooked in zero trans-fat oil. Menus have been morphing to include healthier items such as wraps and salads, and breakfast items have been expanding. The strategy has helped attract new customers, while at the same time increasing share-of-wallet from existing customers by providing menu options to the attendant parents who are being converted from mere chaperones to actual consumers.

Interestingly, Burger King has followed a different approach, taking a back-to-basics strategy by focusing on the brand’s core burger offering. The brand is making a special effort to connect with its core super fan: the young, hungry male. Communications efforts such as the wildly popular “Whopper Freakout” campaign have been part of a deliberate strategy to focus on the brand’s basics, and avoid brand dilution. The strategy has been a success – Burger King’s brand value has grown a “whopping” 57 percent, the largest growth in the category.

Global expansion is also a major contributor to brand value growth. Fast food brands have a very different cachet in the newer markets than they do in the U.S. They hold much more of an aspirational status, often regarded as a treat, rather than a convenient stopping place. And, since the fast-food markets in many of these regions are growing at double-digits, the leading global brands are benefiting. McDonald’s, for example, derives more than 65 percent of its revenues outside the U.S., helping explain its large brand value increase. However, it is not enough to merely be present internationally; from a brand perspective it is also important to strike the right balance between the promise of Western lifestyles and the comfort of local flavors. Yum Brands, for example, seems to have found the right formula with two of its brands, KFC and Pizza Hut featuring in this ranking, and both posting more than 35 percent brand value growth. KFC has been positioned as the “new fast food” in China, and its menu includes local favorites such as fish, porridge, and egg tarts. The KFC brand has more outlets than any other chain in China, and at 2,500 retail locations, the two Yum Brand chains outnumber even McDonald’s by almost three times.

Brands create value not only through product offerings and communications activities, but also through the customer experience. Every touch point at which a customer interacts with a fast-food brand presents simultaneously an opportunity to increase the equity of the brand along with the risk that this equity could be diminished. The successful brands in this category have been making investments in the overall experience too, from expanded hours (pioneered by Wendy’s in 2000, now replicated by most brands) to newer formats (e.g., Burger King’s Whopper Bars), and region-specific layouts (e.g., McDonald’s kiosks in high-density markets such as India, Indonesia and Brazil).

The Starbucks story further underscores the importance of the overall customer experience in the success of a brand. Starbucks’ founder Howard Schultz, realizing that the company may have grown too fast, is stewarding the brand back to its roots, and ensuring, for example, that customers can again experience that aroma of fresh coffee in its stores. While the brand value fell in this year’s ranking, the brand’s fundamentals are strong — it still commands one of the highest brand contribution levels in the category — and the brand is expected to return on track with the helm back under its founder. Not to say that this will be easy — the coffee category is now the front of a new war — with McDonald’s and Dunkin’ Donuts both launching direct attacks on Starbucks with their new coffee offerings.

Clearly the fast food category has come a long way since a few years ago, when analysts were proclaiming its demise. Even the giants in the industry have remained nimble enough to recognize trends or early warning signals, and react to them. One theme has been consistent – the leaders have all recognized the power of their brands, investing in them, protecting them, and stretching them to maintain their competitive edge. If their success has been so noteworthy in the recent troubled economy, we can hardly wait for next year’s results.

Nikhil Gharekhan is Senior Vice President, Millward Brown Optimor , the brand strategy and marketing ROI unit of Millward Brown. Millward Brown is owned by WPP (NASDAQ: WPPGY), one of the world’s largest communications services groups.

The BrandZ Top 100 is the only brand ranking to combine financials with solid measures of consumer sentiment derived from the BrandZ database, the world’s largest repository of brand equity data.

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