The biggest threat to McDonald's Corp.'s market share in the coming years may not come from Wendy's or Burger King. It's from Chick-fil-A, and the reason is families.
Chick-fil-A has quietly become the most favored restaurant destination for families, according to a recent survey by the restaurant research firm Sandelman & Associates, breaking a years-long stranglehold on that title from the Chicago-based burger giant. Customers of the chicken sandwich chain gave it a higher rating on its appeal to kids than did customers of McDonald's.
It's not that McDonald's did poorly in the survey, said Jeff Davis, president of Sandelman — it actually came in second and did quite well, he said — it's just that Chick-fil-A did better. "It's very interesting that anybody passed McDonald's, when for many years people thought McDonald's was untouchable," Davis said.
Why is this important? Because McDonald's for years has relied on families for its customer base, and was so good at it that other chains such as Burger King (before 3G Capital took over) didn't even bother targeting that group, thinking that it was a losing battle.
McDonald's is, of course, much bigger, and gets tons more business from families. But if Chick-fil-A becomes a preferred destination for parents and their children, the chain could succeed in taking market share from the burger giant in the coming years.
"If I'm McDonald's, and I read that, to me that's a nuclear blast of competitive threat I'm trying my best to address, day in and day out, week in and week out," said Mark Kalinowski, analyst with Janney Capital Markets.
Chick-fil-A's consistent growth over the past 15 years has been astounding. In 1999, the company had 897 units and $946 million in system sales. By 2013 it reached $5 billion in system sales, with 1,850 locations. In July, Kalinowski predicted that Chick-fil-A would represent a growing threat to McDonald's market share in the coming years. He's the same analyst who, in 2009, predicted that Chick-fil-A would overcome KFC as the nation's largest chicken concept.
That, in fact, happened last year.
What's remarkable is how Chick-fil-A has been able to overtake McDonald's on the family front. It did so without a massive marketing machine, with no product tie-ins with movies or television programs and without the toys. Instead, it made parents feel better about taking their kids to its restaurants. It added playlands to its restaurants. And it marketed to schools and churches.
"They've done it kind-of stealthily," Davis said.
McDonald's, meanwhile, seems to have concentrated more on the adult market, with products like specialized coffee drinks and smoothies. "McDonald's has made a conscious choice to target adults more," Davis said. "You can see that when you walk into any McDonald's. They have a much more adult feel to them. Chances are they don't have a playland. Their menu has more coffee-related drinks."
The family dynamic is an important point to consider as McDonald's looks to get its sales back on track in the coming quarters. And by no means would we count the chain out. It remains the most well-known brand in the restaurant industry, with the biggest marketing budget. It also has experience in turnarounds.
"McDonald's has been here before," Davis said. "They will not give up. They will fight back."