Why do companies like McDonalds still have a marketing team, theres a McDonalds on every street
Why do companies like McDonald's still have a marketing team, even though there's a Mcdonald's on every street, is a question that would make a fish wonder why humans sell bottles of water when the earth is filled with free water. Yes, I know the majority of earth's water is not drinkable however the question of the day still would make one not wonder the obvious. So I decided to find out for myself and you, using reason, logic, and the assistance of data.
For the question of the day, I realized I would need some help, so I reached out to local food service operations, QSRs, in my local area to understand their marketing habits and how they would differ from a conglomerate such as Mcdonald's. I also believed it would be good to compare Mcdonald's with brands either on track to Mcdonald's daily volume. Along with my own background in the foodservice industry.
What I would infer the reason is?
There are 2 reasons I believe any brand at the level of Mcdonald's, including Mcdonald's, would still invest in marketing even though being a household name. The first belief I would say is that competition is ruff and prevalent, “if you are not in sight you are not in the mind of the customer”, even though these brands are so prevalent across many neighborhoods. You know the saying, “it's about getting the customer through the front door”. Customers may know these brands but they still need a reason to go through the door. Most people do not go to Mcdonald's because they are looking for a 3 Michelin star dining experience, more likely is that they go because of cost, comfort, and efficiency, the point of being a QSR.
When it comes to marketing, one of the biggest things one considers is, “is my competition doing a better job at engaging a similar audience”. These brands do not market to take customers from local 10 locations brands. Rather they are fighting for each other's customers, I would believe. The second reason is that they are just too big. When you are a small brand your mission is to cultivate a loyal and consistent following or customer base, as the majority of a small brand's revenue will come from them. Especially when one is a small brand, resources are often very limited compared to brands like Mcdonald's and Starbucks, so the most effective option is finding a niche or target demographic.
However, when you are a brand as big as Mcdonald's, everyone is your customer, grandma, grandson, and uncle. So it would not make sense to have a niche marketing plan, these big brands have to cast their net wide and hope the fishes come through. Which I touch on later in the comparing section of this blog post, whereas a brand like Shake Shack, quite massive compared to one’s local brands, yet has mastered and maximizes revenue from a niche with minimal marketing costs for high return on marketing. Thus, in short, the reason is that they have a very diverse customer base, leading them to have to venture out into marketing outlets that may not be as profitable, i.e. social media and virality versus cable commercials and pay to reach.
What does the data show?
Only 4 companies in the world have over 20,000 locations across the globe, Mcdonald's, Starbucks, Subway, and KFC(Yum Brand), with four more added when I lower the limit to 10,000. The marketing cost of all these brands, in the 20,000 clubs, in 2020 combined was 1,679.5 million or 1.68 billion dollars. Mcdonald's had the highest advertising costs out of the four brands at 654.7 million at 39,190 locations and was 2nd on the list of location count. Starbucks had the lowest marketing cost at 258.8 million in 2020 and 32,660 locations and was 3rd out of the 4 in location count.
These brands combined have amassed revenue of 50 billion in 2020, despite more than 110,000 restaurants closing during the pandemic. Together they saw a 29.8x return on their advertising spending and served over 200 million+ customers a day, with Mcdonald's leading the charge at 69 million customers. This would give support to my second belief, where these brands have a wide diversity of customers which prevents them from solely utilizing more cost-effective marketing options.
I was not able to find any substantial data to provide support to my first belief, so in my opinion, I believe the answer as to why companies at the scale of Mcdonald's still have a marketing team and marketing budget even though they are household name is because they have a very diverse set of customers making it virtually impossible to have a one-size-fits-all marketing approach, unlike other or locals brands, do.
Furthermore, in part of trying to maintain their household name, they need to constantly brand awareness and follow industry trends, thus making it necessary to have a marketing(advertising) department and expense. If they were to cease all marketing efforts it would leave a vacuum for competitors to be at the forefront of customers' minds.
How local brands compare to big brands in marketing efforts
If you were to talk to 10 local brands with a decent number of locations and ask them what their biggest conversion funnel is? 6 times out of 10, you will hear the phrase “word of mouth”. Generally, when it comes to the restaurant industry, there are 3 things that produce success, being in the right location at the right time, having a good reason for people to share the restaurant, and a mobile platform(shameless plug).
However in all honesty, with word of mouth being the most common conversion funnel for restaurants, why then do not big brands just rely on word of mouth? I mean if they are that big they have to get there somehow? This is a very keen question, is there a point where word of mouth no longer remains effective, or is that eventually brands do not change thus what has already been shared has been shared. I would say anecdotally if you do not live under a rock, you already know what a Mcdonald's is or what a Starbuck is, thus these brands need to utilize alternative outlets to “regain” attention. But when you are a smaller operation, you still have room to share by word of mouth, though I would say word of mouth is not the most effective outlet to rapidly grow a brand. Word of mouth marketing is slow, but the easiest to implement and for many small brands tight on capital and time, it is the most sensible option.
What about Shake Shack? They are truly a perfect example to prove why a brand as big as Mcdonald's cannot solely rely on word of mouth. Shake Shack spent 400,000 in 2019 for advertising expenses, however, netted a revenue of 350+ million. This is because Shake Shack is very small compared to Mcdonald's even though they are 2% the value of Mcdonald's. The reason Shack Shake was able to do the unbelievable is that Shake Shack is still a niche brand, they only have 300 locations worldwide compared to 29,000+ and 31,000+. Though once Shake Shack as a brand grows to be more than a millennial brand and to a household brand, they will have to diverge from the marketing tactics that brought them to stardom.
Then what matters more, how much you spend or effective marketing? I’m sure a brand as big as Mcdonalds or Starbucks, every dollar matters. Thus regardless of their higher marketing expenses compared to rising counterparts, they are very meticulous with their spending. So the answer to why do companies like McDonald's still have a marketing team, even though there's a Mcdonald's on every street Is because consumer relevance fades very easily when there is such high competition and being such a big brand, they are vulnerable to a very diverse set of customers not allowing them to exclusively make use of marketing channels that could produce generic growth or more “bang for the buck”.