It wasn't that long ago that McDonald's (NYSE: MCD) was copying the playbook of its fast-casual rivals, sprucing up its menu with trendy foods like kale bowls, lobster rolls, and sirloin burgers in an attempt to woo back millennials and spur sales growth.
While those efforts had little actual impact on the burger joint's sales trajectory, now that fast food is on the rise again and fast casual is declining, we're seeing better-burger rivals mimicking the more successful aspects of McDonald's business. The Habit (NASDAQ: HABT), for instance, just announced it's going to add more drive-thru windows at its restaurants and will begin offering value menu items.
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Convenience is key
The drive-thru has always been a key element of the success of both McDonald's and the quick-serve industry as a whole. But where the drive-thru window accounts for 21% of sales for the entire restaurant industry, it represents around 70% of McDonald's sales.
You expect a drive-thru at a McDonald's, but as restaurants struggle to attract customers, the drive-thru is no longer the sole province of quick-serve joints. They're spreading to other chains that you wouldn't necessarily or immediately associate with having one, like Panera Bread and Starbucks.
The Habit isn't new to drive-thru windows, as they're featured at around 30% of its locations, but with its comparable-store sales turning negative for the first time in 13 years, improving the customer experience and making it easier for diners to pick up an order is leading the chain to install more of them.
During the company's recent conference call with analysts, President and CEO Russ Bendel said the company plans to open roughly 30 new company-operated restaurants next year and six to eight franchised locations. It expects about half of its 2018 openings will be drive-thrus. He expects an even greater percentage the year after.
"We believe drive-thrus allow us to appeal to a broader audience and develop in locations where we typically wouldn't with a traditional location as well as positioning the brand to meet the evolving needs of the consumer who continues to place high importance on convenience," he said.
The reason McDonald's, The Habit, and other chains have come to love the drive-thru window is they generate higher returns. The Habit says stores with drive-thrus achieve returns in excess of the chain's historical cash-on-cash returns of 40%.
Everyone loves a bargain
Certainly drive-thrus will help the better-burger chain provide the convenience customers are looking for, even if drive-thru locations are more costly to build, but arguably the more dramatic news is The Habit's decision to begin offering value menu items.
Along with fresher ingredients and a nicer ambience, one of the big differences between fast-casual chains and their quick-serve counterparts is price. An Original Charburger at The Habit will run you $7.65 while a basic ShackBurger at Shake Shack will set you back $5.55. Grilled chicken sandwiches will run you over $6 at both locations. Conversely, a basic burger at McDonald's goes for around a buck, and for less than $6, you can get a Big Mac meal that includes fries and a drink. So, too, with a grilled chicken sandwich.
Now The Habit says it wants to add "value" options. While we're not about to see a dollar menu, the chain notes it's being pinched by the value price war being waged among McDonald's, Wendy's, and Burger King.
Bendel noted McDonald's particular ability to "inflict pain" on its rivals, and said value offerings are a big reason why. So now The Habit is going to try its hand at a value offering, though the company said it won't be discounting its core products or brands. It promised to have more to share in the next few months.
There may come a time when you won't really be able to tell fast food from fast casual. Both niches will have borrowed so much from one another that they'll all look fairly similar. But as McDonald's looks forward to 2018 and re-energizing itself, it might not be surprising to see The Habit cribbing from more of its playbook.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool is short shares of Shake Shack. The Motley Fool has a disclosure policy.