- The Washington Times - Saturday, December 28, 2002

MIAMI — When Richard Steinig opened his first of four South Florida McDonald's restaurants in the 1970s, the fight for burger chain supremacy could be summed up this simply: Which was tastier the Big Mac or Burger King's Whopper?
Thirty years later, No. 1 McDonald's Corp. and No. 2 Burger King are still brawling. But profits are being sapped by discounts and menu duels, not to mention new competition, a saturated market and changing consumer tastes.
"You can't make money selling a Big N' Tasty at a dollar," Mr. Steinig said. He was referring to the chain's biggest quarter-pound burger, which is supposed to sell for more than $2 but which has been discounted since October.
"The new Dollar Menu is bringing in customers [but] it hasn't necessarily brought the profits," he said.
The war has led to changes in leadership in both companies this month, and the first order of business for the new chief executives will be to decide whether to pull out of the pricing race.
Burger King has all but asked for a cease-fire.
"With the new management at McDonald's, we hope the first thing they do is stop" the price war, said Rob Doughty, Miami-based Burger King's vice president of corporate communications. "It's not profitable, it is not sustainable long term and it's not good for our franchisees."
The feud has opened opportunities for other competitors. No. 3 Wendy's International has remained out of the price war and has made steady gains. So, too, has the increasingly crowded field of quick-service chains offering food marketed as healthier or more varied fare.
Efforts by the burger heavyweights to keep pace with the trends, including adding new menu items and revamping kitchens, have cost lots of money but netted only mixed results in a weak economy.
Even when the economy improves, the struggle won't be over. "People have become accustomed to alternatives," said Jerry McVety, president of McVety & Associates, a Farmington Hills, Mich.-based food service consultancy.
McDonald's, with more than 13,300 restaurants in the United States and 43 percent of the market, has posted lower earnings in seven of the past eight quarters. It expects to close out 2002 with the first quarterly loss in its 47-year history.
Burger King, with 8,146 U.S. restaurants and an 18 percent market share, watched operating profit fall $27 million to $250 million in fiscal 2002, which ended June 30.
The battle is flame-broiling some franchisees: AmeriKing, one of the biggest, sought Chapter 11 bankruptcy protection earlier this month.
Burger King fired the first shot in the latest price war. It cut the prices of 11 items on its menu to 99 cents in September. McDonald's responded with eight items at 99 cents.
Marquee sandwiches have become ammunition. In response to McDonald's $1 Big N' Tasty, Burger King is considering dropping its flagship Whopper sandwich to 99 cents as early as January, something management says it would rather not do. In November, it began selling its double cheeseburgers, usually priced at $1.79 or $1.89, for 99 cents.
Menus and food preparation are also part of the campaign. For example, McDonald's experimented with heating ovens to keep food warm. It then changed to a "made for you" strategy, hoping to counter Burger King's "have it your way" system of making burgers to order.
Burger King tried to revamp its menu earlier this year, introducing a vegetarian burger and extending its Whopper trademark to a new chicken sandwich.
Some franchisees are grumbling about all the copycatting.
"I have never been one to try to emulate what our competition does, but to do what's right with this brand," said Steven Lewis, president of U.S. Restaurants in Blue Bell, Pa., which owns 42 Burger King restaurants in the Northeast. "That's what we really need to get back to."
Bradley D. Blum, named last week to replace John Dasburg as Burger King's chief executive officer in January, said he likely will focus on boosting satisfaction and the quality of the food and service. Mr. Dasburg will remain chairman.
Mr. Blum's hiring came less than a week after British liquor giant Diageo jettisoned Burger King, selling it to a consortium of U.S. investors. To complete the deal, Diageo had to reduce the price to $1.5 billion from an initial price of $2.26 billion reached in July.
At Oak Brook, Ill.-based McDonald's, Chairman and Chief Executive Jack Greenberg took early retirement this year. Jim Cantalupo, the former company president, came out of retirement to rejoin the company.
Meanwhile Wendy's, which does not cook its burgers in advance and is geared more toward adults, has gained market share each of the past eight years. It had a constant rise in sales this year.
Wendy's has had a 99-cent menu since 1989 but has kept its high-end sandwiches off it. The company introduced a line of new salads earlier this year with toppings not typically seen in fast-food restaurants.
The company plans to open between 300 and 320 new restaurants next year, said Denny Lynch, a senior vice president of communications for Wendy's International.
Other fast-food chains also have been making gains and are poised to grow in coming years.
Louisville, Ky.-based Yum Brands Inc., which owns Taco Bell, Kentucky Fried Chicken and A&W;, among other brands, has been making gains through its blended-stores concept restaurants that are a combination of one or more of its brands.

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