Similarities between Competitors and the Implications for Location Strategies

Although Burger King and McDonald’s are widely recognized as direct competitors, there may be enough differences in customer profiles between the two chains to recommend or justify divergent location strategies. In this regard, the authors use ordinary least-squares (OLS) regression to test whether site and trade-area criteria can explain individual store sales and if such criteria are consistent for both chains. This research shows that there are situations where locational factors may have directionally different effects on store sales of the two chains. While Burger King generally experienced higher sales in denser urban areas with higher proportions of minorities, McDonald’s experienced higher sales in suburban areas adjacent to freeways. DOI: 10.4018/jagr.2010100104 46 International Journal of Applied Geospatial Research, 1(4), 45-62, October-December 2010 Copyright © 2010, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. tion can provide long-lasting sustainable returns on investment (Ghosh & McLafferty, 1987). Although the importance of location is widely recognized by academics and practitioners, there are a number of components to finding good locations that make it an ambiguous procedure at times. These many unique complexities can stand in the way of developing rules of thumb for desirable QSR locations. For instance, although it might seem obvious that being at an intercepting location between competitors and a freeway exit is desirable, what if the target customers are college students and generally do not consistently drive long distances. Perhaps other locations, such as those close to a university campus, may generate larger sales volumes. Prior to targeting specific locations, one sure rule of thumb is to analyze and understand the customers. QSR companies have occasionally been misled by wrongful assumptions and lack of analytical research. The highways have been plagued over the last several decades with closed stores that were the result of the flawed strategy of simply following McDonald’s and expecting success to follow. Melaniphy (1992) attributes this to both franchisors and franchisees of being unaware of their actual customer profile and competitors or assuming that everyone was their customer. McDonald’s, on the other hand, has displayed a deep commitment to location research through its real-estate practices. They have a history of utilizing Geographic Information Systems (GIS) software to assist the process of identifying new locations (“Leaders,” 2002). According to McDonald’s website (“McDonald’s Corporation,” n.d.), the site-selection process includes researching and identifying locations first at the regional corporate level, followed by real-estate acquisitions and building construction, and finally the placement of the most qualified franchisee for that store. In other words, their business model, including site selection, is franchisor-driven. Most other QSR chains have not historically been renowned for high levels of analytical real-estate research. Burger King’s business model provides considerable control to the franchisees. As described on their website (“Burger King,” n.d.), the chain employs GIS for market analysis and site selection, especially underserved markets, but this is primarily an effort to assist the franchisees in their location decisions. It should be noted, however, due to the retreating costs in Information Technology (IT) and the associated data, that many more businesses have the capabilities of processing large volumes of data in GIS software for the purposes of site selection either by internal research analysts or by external third parties (Hernandez et al., 1998). QSRs are ubiquitous throughout the US. Some chains have existed for several decades and have national exposure, while regional chains and new start-ups also attempt to capture market share. Depending on the menu offerings, these chains compete with each other and other restaurants with varying levels of intensity (Melaniphy, 1992). Burger King and McDonald’s have long been recognized as direct competitors in the QSR industry. Direct competitors offer similar products at similar prices (Melaniphy, 1992). These two chains have numerous similarities including a large portion of sales coming from drive-thru operations and a menu oriented around hamburgers and fries. They are also recognized as providing good values for their meals (Jones et al., 2002). Following this line of thinking, it would seem logical that the two chains would have similar locational requirements and would perform similarly in analogous locational settings. From a management perspective, however, this could be a potentially very costly misconception. Consequently, we review the different sales performances of Burger King and McDonald’s in an attempt to derive any possible differences between the two chains with regard to locational characteristics. This is an empirical comparison study of Burger King and McDonald’s to test their actual similarities with respect to location and sales. Towards that end, we address the following research question. 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