Even with CEO change, McDonald's facing onslaught of competition

Markets Associated Press

McDonald's new boss must feel like a freshly crowned king under siege.

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The world's biggest hamburger chain is facing an onslaught of competition, from better-burger chains like Five Guys to brands like Chipotle that tout the superior quality of their ingredients.

Supermarkets and convenience stores are selling more on-the-go food, too. Last year, visits to convenience stores for prepared foods rose 3 percent, while visits to supermarkets were up 1 percent, representing millions of visits, according to The NPD Group.

After seeing its own customer visits decline at established U.S. locations for two straight years, McDonald's Corp. said Wednesday it was replacing CEO Don Thompson with its chief brand officer, Steve Easterbrook. It was the latest in a string of changes the company has announced in hopes of appeasing investors and winning back customers.

In addition to plans to simplify its menu and improve service, McDonald's recently launched a marketing campaign intended to associate its brand with the positive emotion of loving. And in early March, it's planning a "Turnaround Summit" for franchisees in Las Vegas.

But even if McDonald's gets its house in order, its rivals aren't going away. Here's a look at what it's up against in its flagship U.S. market:

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PROBLEM? BURGER BOOMLET

McDonald's is facing new burger competition.

Shake Shack, which is expected to make its much anticipated debut on the New York Stock Exchange, promotes its use of hormone- and antibiotic-free beef and is emblematic of the "better burger" trend.

The company has grown to 63 locations around the world, including 36 in the U.S. Over time, it sees potential for at least 450 U.S. locations. That's tiny when compared with McDonald's, which has more than 36,000 locations around the world, including more than 14,000 in the U.S.

But Shake Shack isn't the only one rushing into the burger market. Five Guys, for instance, has more than 1,000 U.S. locations and more than 1,500 in development, according to its website. BurgerFi, which was founded in 2011 and has 63 locations, says it plans to add up to another 50 this year.

Traditional rivals also are pressuring McDonald's. Burger King in 2012 rolled out a new menu and marketing in hopes of revitalizing its brand. It has since introduced items that compete more directly with McDonald's, including a "Big King" sandwich that resembles a Big Mac.

Wendy's, meanwhile, is trying to position itself as a more premium fast-food chain with burgers and sandwiches made with specialty bread and remodeled stores with more inviting decor.

MCDONALD'S ANSWER: To step up its own game, McDonald's plans to roll out an option that lets people build their own burgers at 2,000 stores by later this year.

PROBLEM? CHIPOTLE FACTOR

The gravitation toward places that promise better ingredients doesn't end with burger rivals. Chipotle, for instance, is often cited as the successful contrast whenever McDonald's troubles are mentioned.

A big part of Chipotle's draw is that people can walk down a line and watch their food being assembled quickly, exactly as dictated. Since McDonald's sold its stake in the chain in 2006, Chipotle has grown to more than 1,700 locations. In the latest quarter, sales surged 19.8 percent at established locations.

It's not just the format that attracts people, however. Chipotle also burnishes its image with its "Food with Integrity" slogan. That ethos around good ingredients is turning up throughout the industry. Subway this month rolled out new chicken strips that it says doesn't have artificial flavors or preservatives, and says it's working on improving other ingredients.

MCDONALD'S ANSWER: McDonald's is taking note. Mike Andres, president of McDonald's USA, said last month the company is also looking at shrinking the ingredients it uses.

PROBLEM? COFFEE AND BREAKFAST COMPETITION

For established coffee chains like Starbucks and Dunkin' Donuts, a key way of driving sales is becoming more of a destination for food.

Already, Starbucks says about a third of its transactions include a food item, and the company is pushing hard to increase that figure. It's introducing new salads and sandwiches that can be heated up in an oven. And to attract customers in the evenings, it's rolling out wine, beer and "small bites" like chicken skewers to thousands of locations in coming years.

Dunkin' Donuts is trying to boost food sales as well, and has expanded sandwich offerings for the breakfast and lunch hours. Like Starbucks, it's trying to make more use of its stores in the afternoons, when the morning rush dies down.

Meanwhile, Taco Bell, which is owned by Yum Brands, last year launched a national breakfast menu in hopes of stealing some McDonald's customers. The Mexican-style food chain targeted the breakfast leader by featuring real-life people named Ronald McDonald professing their love for items like the waffle taco.

ANSWER: McDonald's has said it plans to play up its coffee offerings, which can be a draw for people who end up spending more on food. It's also playing up the fresh eggs it uses for its popular Egg McMuffin.

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