A newly released survey took a deep dive look into recent trends affecting fast food, including the effectiveness of advertising on new menu item sales, trends in value menus, and how health influences fast food visitation. Today we'll focus on the impact of ad spending on new menu item sales. I'll address value menu trends and the role of health in consumers' dining choices in future articles.
Survey says ...
Placed evaluated the likelihood of a consumer to buy a fast-food menu item within 30 days of seeing or hearing an advertisement for a new menu offering. Consumers who bought the advertised offering were considered "early menu adopters." Advertising was found to be most effective with early adopters for the following companies.
Yum! Brands (NYSE:YUM)
Yum! Brands' advertising appears very effective, with all three of its fast-food restaurants (KFC, Taco Bell, and Pizza Hut) topping the list. In particular, Taco Bell has drawn customers in droves, selling a half-billion Doritos Locos Tacos since their March 2012 launch. Amazingly, 53% of Taco Bell visitors in April reported purchasing the newly launched Cool Ranch-flavored Doritos Locos Taco. Yum! hopes new menu item sales like these will help the company meet its lofty goal of doubling Taco Bell's domestic annual sales by 2021.
McDonald's has struggled with same-store sales declines since early last year and has been criticized for its bloated menu. The home of the Big Mac has expanded not only our waistlines but also its offering count, which has increased by 70% since 2007. The company has recently tried to lure consumers with even more items, including Quarter Pounder burgers, egg-white breakfast sandwiches, and Premium McWraps. The Placed survey found that roughly 42% of McDonald's visitors reported trying the McWrap in April. Consumers ranging in age from 25 to 44 had the highest tendency to order the McWrap, indicating the item's success in attracting a slightly younger demographic.
Chipotle Mexican Grill (NYSE:CMG)
With its focus on natural, locally sourced, and sustainably raised foods, Chipotle stands apart from the others. The fiery burrito maker has enjoyed tremendous growth over the past several years. Its cult-like following continues to lure customers. And, as the study found, so does the effectiveness of its advertising, which is typically considered more educational and grassroots compared with the typical fast-food promotions.
Interestingly, Chipotle's selling, general, and administrative expenses (which include advertising spend) come in at less than 7% of revenues. Compare that with a whopping 26% for Burger King Worldwide (UNKNOWN:BKW.DL), 12% for Wendy's (NASDAQ:WEN), 11% for Yum! Brands, and 8% for McDonald's. Chipotle proves that a trimmed-down SG&A as a percentage of revenues can be quite effective, especially when you boast a competitive advantage like differentiation through focus on quality.