Sunday, February 1, 2004

McDonald's gains at Burger King's expense

By Dave Carpenter
The Associated Press

CHICAGO - Is McDonald's going for Burger King's jugular?

Executives of the world's largest restaurant chain laughed when an analyst recently asked them that question about their struggling fast-food rival - and didn't deny it.

McDonald's widened the gap on runner-up Burger King with a turnaround year in 2003 that saw it boost U.S. sales sharply through new products, extended hours, a high-powered ad campaign and the slowing of its rapid expansion pace.

The No. 2 burger-seller, meanwhile, has had lackluster results. Burger King's same-store U.S. sales, measuring performance at established restaurants, fell 4.4 percent in the second half of 2003 after overall sales declined nearly 2 percent to $11.1 billion in the fiscal year ended June 30.

"With respect to the major competitor, you know it's in our blood here," Charlie Bell, McDonald's president and chief operating officer, said on the conference call, without naming Burger King.

In a telling anecdote about the founder of the Oak Brook, Ill.-based chain, he added: "Ray Kroc once said, 'If you see a competitor drowning, you stick a hose down their throat.'

"We do know the one that you're talking about is vulnerable. And we're going to work hard to make us continually successful, and they'll have to play catch-up," Bell said.

CEO Jim Cantalupo, who has been with the company for more than half its 49-year history, said McDonald's strategy is not about one competitor; rather, it's about "all of them." But he acknowledged that market share - where Burger King has remained a distant No. 2 - is the driving focus.

"You've heard me say before, 'I don't like to talk about market share because we don't want to share anything,' " Cantalupo told the analysts.

A Burger King spokesman did not immediately return a phone call seeking comment.

McDonald's and Burger King have been going burger to burger for more than 30 years. But the stakes of their battle have intensified recently as the U.S. fast-food market becomes increasingly saturated, casual-dining eateries take away business and Americans opt for healthier diets.

A price war between the two that stepped up in 2002 weakened profits and produced only mixed results, with Wendy's steering clear and picking up steady gains.

"Burger King's a good competitor, but McDonald's just needs to execute effectively and they are the dominant restaurant brand in the world," said Douglas Christopher, an analyst for Crowell Weedon in Los Angeles.

In the latest sign of turmoil amid continued sluggish sales, Miami-based Burger King fired its lead creative advertising agency last week - its fifth marketing shake-up since 2000. A year removed from its worst financial quarter ever, one that prompted a change in leadership, McDonald's reported a $125.7 million profit in the fourth quarter and pledged to remodel 1,500 to 1,800 of its 13,000-plus U.S. restaurants in order to improve operations further.

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