CASE 6
White Castle System Inc.
White Castle System, Inc. is an unusual competitor in the world of fast-food restaurants. Established in 1921, White Castle is generally considered the original fastfood hamburger chain. The name White Castle was chosen to connote more than
a mere physical description of the restaurants. According to company history,
‘White’ signifies purity and cleanliness, while ‘Castle’ stands for strength, permanence, and stability.
White Castle invented a limited menu, fast-food service, and developed and perfected methods that have become standard in the industry. Its 24-hours-a-day concept
was an innovation and remains almost unique in fast-food operations. The company literally created the take-out food industry by developing packaging to keep
its burgers warm.
While most fast-food chains have come into prominence through franchising,
White Castle has refused the franchise route domestically, preferring to retain complete ownership and control of its own units. White Castle stock is not publicly
traded. The company is entirely held by the founding family, which takes an active
interest in operations.
White Castle was founded by the late E.W. “Billy” Ingram; E.W. “Edgar”
Ingram, Jr., is retired but functions in the post of chairman of the board, and E.W.
Ingram III is currently the president and chief executive officer.
In an industry notorious for high personnel turnover, approximately 10 percent
of White Castles over 9,000 employees have from 10 to 45 years of unbroken service. The company has the broadest benefits package of any fast-food organization,
and the basic benefits are provided to every employee, regardless of station.
Early growth was rapid. There were 100 units open as soon as 1930, but the
number fell to below 70 when World War II brought meat rationing. After the
Korean War the company grew again, establishing itself principally in urban areas
“White Castle System, Inc.,” by William J. McDonald, reprinted from Cases in Strategic Marketing Management, 1998, Prentice-Hall, Inc.
in the Northeast. Gross sales in 1989 were less than 1 percent of the nation’s fastfood revenue.
Over the years, White Castle has concentrated on its menu of burgers, fries, and
beverages. Although, just because White Castle has not introduced salad bars does
no mean it lacks an innovative marketing strategy. Its ability to change has been
demonstrated throughout its history and continues to be reflected in its recent telemarketing and frozen product efforts. A carefully considered promotional strategy,
including aggressive public relations, contributes to White Castle’s continued success and helps differentiate it from other fast-food/quick service operations. However,
as competitive pressures mount and as consumer preferences change, White Castle
needs to continually reassess its marketing strategy, particularly its pricing and promotional activities to determine what approach will be most effective in the future.
FAST-FOOD INDUSTRY TRENDS
The restaurant business in general, and the fast-food industry in particular, is experiencing sluggish growth and diminished profits due to increased competition and
fickle consumers (Table 6–1). Industry revenue only grew by about 6 percent in
1990 and future estimates make that figure sound bullish. During the boom times
of the 1980s revenue growth was a high as 12 percent per year.
The entire $147 billion eating place industry, from haute cuisine to the corner
diner, is in a state of turmoil. Operating margins for several large publicly traded
restaurant chains were squeezed sharply in 1988–1989. The malaise is partly the
result of technology and changing eating patterns. On the technology front, the
biggest threats to restaurants have been from microwave ovens and videocassette
recorders.
Consumer eating habits and preferences are evolving. Baby boomers find eating at home more economical and more convenient. Many millions of Americans
are tired of eating out or cannot fit it into their schedules. Consumer lifestyles are
changing and that is effecting what, how, and when they eat; they also appear to
want more types of food to select from. If restaurants are the losers, then the winners are the purveyors of take-out and take-home food. For most restaurants,
adaptability is the key to survival, including a willingness to change what is on the
menu and how it is served.
TABLE 6–1
Major Market and Industry Trends
More competition
Healthier items
Menu expansion
Slow market growth
More emphasis on customer service
Expanding hours of service
More items at lower price points
Higher operating expenses
Changing labor forces
Changing population demographics
The $70–billion-a-year U.S. fast-food market, dominated by McDonald’s, has
suffered as customers have defected to other chains for discounts, stayed at home
for meals, and began shunning red meat and fried food. McDonald’s, which had
revenues of about $6.5 billion in 1992, still reports healthy profits, but sales are
increasing much faster overseas than domestically. In an effort to attract and keep
customers, the average McDonald’s serves salad, chicken, and decaffeinated coffee as well as providing a more comfortable atmosphere. The next addition to the
menu will be a McDonald’s pizza. McDonald’s hopes to lure people who stay at
home into its restaurants with its new products.
To address these issues many other fast-food companies are also making
changes in how they operate and what they offer. Many outlets are moving to
expanded menus, operate longer hours, and sell more items at lower price points.
Burger King has even introduced a mini-burger similar to White Castle’s in size but
with a different product design. Pillsbury Company’s restaurant group, which
includes Burger King, Godfather’s Pizza, Quik Wok, Steak and Ale, and Bennigan’s, is attempting to apply more organizational discipline to help its bottom line.
Wendy’s International revised its marketing approach after its first-ever loss in the
first quarter of 1987. It developed a new advertising campaign in an attempt to reestablish the strength of its burger and spent more on training and store operations.
AN INDUSTRY LEADER
White Castle has a reputation as an industry leader in sales per store, often surpassing all other major fast- food restaurant chains. Comparing menu item unit
sales for all menu prices at White Castle with similar figures from other fast-food
restaurants also reveals that traffic at White Castle restaurants is higher than that
of the competition. Average store location sales were over $1.5 million in 1992 for
its 257 restaurants (surpassed only by McDonald’s sales per store) for total sales
of $338 million. White Castle System revenue and income remained strong (Figs.
6–1 and 6–2). Gross sales in 1992 were more than $92 million. That is something
of a surprise, given the overall slump in which the fast-food industry remains.
Company Expansion
White Castle is projecting growth of as many as 10 to 15 new stores per year in
new and existing markets nationwide. Money for White Castle expansion comes
for the most part from available funds, so growth has been controlled and steady.
International Franchising
In late 1988, the company entered into an Asian franchise agreement with a group
of Malaysian investors. The first White Castle restaurants opened there in the second quarter of 1989. In the first quarter of 1992, White Castle opened a restaurant in the Bahamas.
340
330
Millions
320
310
300
290
280
1988
1989
1990
1991
1992
1991
1992
Year
FIGURE 6–1
White Castle System Revenues
Source: Estimated from various sources
33
Millions
32
31
30
29
28
1988
1989
1990
Year
FIGURE 6.2
White Castle System Income
Source: Estimated from various sources
New Products
The new Castle Meal “A Meal Fit For A Kid,” is being offered in all White Castle restaurants. It includes a White Castle hamburger or cheeseburger, fries, soft
drink, and a free surprise for children. Breakfast and chicken sandwiches are offered
at nearly all locations and are developing a loyal following of their own. Clam
strips, grilled chicken, and bacon cheeseburger sandwiches are available at a few
stores. The introduction of products such as these is a decision made by area managers in response to local demand.
Expanding Distribution
In the past, some people who have moved from a White Castle market to one with
only White Castle competitors, telephoned the company to order dozens of the
hamburgers for delivery by air express. White Castle observed that customers were
“Buying ‘Em By The Sack” to take home, freeze, and reheat later in a microwave.
This is possible because of the way White Castle prepares its hamburgers: they are
steamgrilled, helping them to retain moisture essential to the freezing/reheating
process. The company realized the potential in moving into a new area where there
were no existing White Castle restaurants, and introducing its product. The resulting frozen White Castle hamburgers are marketed in most of the country on a constantly expanding basis. This decision to offer the product in grocery stores was
thus based on intense consumer demand.
A Quality Product
White Castle started with a superior product. The chopped beef cooked in the
White Castle hamburger sandwich is all beef from American grown beef inspected
and U.S. graded. It is shaped and compressed into squares with five evenly spaced
holes on White Castle equipment to cook quickly and uniformly. Equally unique
is White Castle’s method of steam cooking. Others debate the merits of broiling,
frying, grilling, etc. (some of which is just semantics).
Below is a nutritional breakdown for an individual White Castle burger:
Weight
Fat
Fiber
Protein
Ash
Nitrogen-free extract
Carbohydrates
Salt
Sodium
Calories
2.06 oz.
7.94 g
2.13 g
5.88 g
35 g
13.25 g
15.38g
70g
266g
161.27
White Castle operates three bakeries and a meat-processing plant to supply its
own stores.
Promotional Efforts
Historically, While Castle has focused its promotional efforts on local radio and
television advertisements and coupon premiums. Today, a centralized marketing
program directs messages to specific target markets, particularly the children of
their current customer base. Television advertising includes:
1. Castle Meal commercials that air on weekdays and Saturday
mornings to introduce the kid’s meal to 2 to 11 years olds.
2. Specific promotion and event advertising campaigns.
Radio advertising promotions attract the attention of 18 to 49 year olds.
The White Castle advertisements are perceived to be:
1. Highly credible.
2. Markedly different from the competition.
3. Straightforward and humorous.
4. A continuation of what consumers perceive to be the White Castle “story” or phenomenon.
5. Informational rather than hard-sell.
White Castle has one of the most successful promotional strategies in the fastfood industry, predicated on the fact that White Castle is just plain different from
the others. Word-of-mouth is an important facet of the campaign and this appears
as strong as ever with no reason to feel it cannot continue.
Because the company services a limited geographic area and limited number of
outlets, regional advertising is important. Demand appears to be at an acceptable
level, so increasing promotional efforts may be wasteful in terms of cost and detrimental in terms of ability to handle additional demand. In fact, if White Castle’s
cult grows too large, it may lose this differentiating feature. Also, if it does too
many special events activities, the enormous publicity generated may start to diminish as the act becomes “common place.”
White Castle may want to feature some of its employees in advertising campaigns and space; given their longevity, they probably have definite stories to tell.
Even this, however, would probably not have the impact of its slice-of-life commercials or the Don Adams spots.
WHITE CASTLE’S COMPETITORS
White Castle has many competitors; Table 6–2 lists most of them. But, there are
many more, including the nonchain fast-food operations and the less well-known
regional operators, plus less direct competition with supermarkets, convenience
stores, diners, and regular restaurants.
McDonald’s and Burger King are the closest rivals. While White Castle started
in business before they did, they have grown rapidly in the last 20 years. These competitor’s marketing strategies are closely followed by White Castle, partly because
they appear ready to copy some of its menu items and operating procedures.
TABLE 6–2
White Castle System Competitors
Burgers
McDonald’s
Burger King
Roy Rogers
Wendy’s International
Burger Chef
Chicken
KFC
Mexican
Taco Bell
Pizza
Domino’s
Little Caesar’s
Godfathers
Also, new rivals in the fast-food market are segmenting the business in ways
that impact McDonald’s and Burger King as well as White Castle’s operations.
Given the menu segmentation that is occurring, McDonald’s may soon become
the Sears of fast food, a lumbering giant surrounded by much nimbler rivals.
Currently, McDonald’s is rethinking its traditional approach to standardizing
its decor and offerings across all locations. They are beginning to foster flexibility,
meaning that franchisees can now launch experiments in their food and decor.
They can test new formats, ranging from self-service to small cage-style outlets to
serving McDonald’s fare on airplanes. This is a big gamble because the success of
McDonald’s is based on mass production and absolute uniformity.
Over the last decade, Burger King and McDonald’s engaged in the infamous
advertising “Battle of the Burgers.” Wendy’s entered the fray in 1983 by declaring
itself the winner. The battle continues today. White Castle, on the other hand,
never had to enter the battle and might be declared a winner of the ultimate war
in terms of sales volume and profitability.
CONSUMER NEEDS SATISFIED BY WHITE CASTLE
White Castle is satisfying consumer’s needs (Table 6–3) by enabling its customers
to address those needs for food through an inexpensive meal with a unique taste
that they have grown to love. Having been exposed to this unique tasting burger
in childhood, as customers get older, they learn to associate the “white building”
with small square burgers that taste delicious. This taste is a reminder of youthful
days when they contemplated what to eat during late hours of the morning. White
Castle’s convenient 24–hour service enables consumers to avoid the task of a high
involvement decision, and many fast-food establishments do not offer this convenience. The limited menu offered by White Castle simplifies the decision-making
process and contributes to fast service that customers are looking for.
And, when parents dine with their children at White Castle, there may also be
a limited amount of time. Thus, being able to place an order and leave lessens the
frustration encountered by the parents on family outings. And, because parents
are often concerned with the quality of food their children consume, White Castle’s offering of pure beef steamed burgers exactly fits the bill. Parents also relive
their youthful White Castle dining experiences.
The limited amount of bun and meat included with the burger and its relatively
low price at 29 cents per unit allows customers to enjoy not just one but several of
the miniature burgers. Customers can also buy them by the bag and obtain volume
TABLE 6–3
Consumer Needs Being Satisfied by White Castle
Inexpensive meal
Unique taste
Twenty–four hour service
Quality products (all beef burgers, etc.)
Youthful nostalgia
Limited menu
Fast service
Fellowship
discounts. The light, airy bun is an added unique characteristic of a White Castle
hamburger that also gets imbedded in the taste preferences of the loyalists.
WHITE CASTLES TARGET MARKET
White Castle’s customers are predominantly upper-lower class individuals who
look for an inexpensive, quality meal (Table 6–4). White Castle might not succeed
in targeting a more lower-middle class market because it does not conform to what
members of that social class desire in price points, ambiance, and perceived food
quality. The location of most White Castles is also an issue because they tend to
be built in more upper-lower class than lower-middle class neighborhoods.
It is often said that White Castle invented the hamburger addict. As the saying goes, “once customers are hooked, they are hooked for life.” The chain’s continuing success is attributed to customer loyalty to products and service they can
count on, supported by dedicated employees who are happy in their work.
Loyal followers of White Castle are sometimes referred to as a “fanatic cult.” For
example, as part of its 1980 anniversary celebration, Fountain Hills, Arizona, with
a population of 2,700, imported 10,000 White Castle hamburgers. They sold out
within an hour and a half. The next summer they ordered 100,000 and had Clayton Moore, who portrayed the “Lone Ranger,” ride shotgun on the truck making the
delivery in case White Castle rustlers showed up. It was an annual event for several
years. Then frozen White Castles became available in local supermarkets.
Customers develop this high degree of brand loyalty from positive experiences
in early life and from the reinforcing value of obtaining a valued good on a regular basis. Such attitudes are developed early in the individual’s family life through
socialized eating habits and positive associations with White Castle experiences.
Thus, many of the restaurant’s current customers were exposed to the unique taste
of White Castle’s products as children, later patronizing with peers during their teens
and young adulthood.
TABLE 6–4
White Castle Target Market
Demographic segmentation:
Age: 15–60
Gender: male and female
Marital status: single, married
Income: lower-lower to upper lower
Occupational: blue-collar, unskilled laborers
Education: high school, some college
Psychological segmentation:
Lifestyle: family-oriented
Sociocultural segmentation:
Social class: lower to upper-lower
Family lifecycle: bachelors, parenthood
User behavior segmentaion:
Usage rate: medium to heavy
User status: aware
Brand loyalty: strong
Benefit segmentation: convenience, economy
The following concepts are frequently used to explain the “fanatic cult” of
White Castle loyalists:
1. Attitude development. Initial favorable experience with the
product reinforced by subsequent purchases strengthened.
Favorable attitudes, leading to repeat purchases and hard-core
brand loyalty.
2. Benefits perceived to be important. Customers rate White Castle
hamburgers high on attributes they value. This confidence and
conviction is so intensive that customers are willing to go to
extraordinary lengths to purchase the product.
3. Lifestyle. White Castle hamburgers invoke a lifestyle that is
memorable or pleasant to the customers (i.e., first date, family
trips). Buying at White Castle is a way to relive those times.
4. Learning. If the customer grew up conditioned by White Castle hamburgers and was satisfied by them, other alternatives
may seem less attractive.
5. Family. Families play an important role in White Castle loyalty
because they introduce family members to its menu. Those experiences also create strong associations with positive experiences
that remain into adulthood.
6. Peer group. Among many, White Castle is the only hamburger
worth eating, and buying them makes those customers part of
a group.
THE FUTURE
The secrets to White Castle’s success lie in its devoted customers, its unique product design (including product quality), and value pricing. White Castle’s customers
have acquired a passionate devotion to its good tasting little square burgers, which
are uniquely prepared by steam, not fire.
The White Castle story illustrates that a fast-food organization can be very
successful without following a “me-too” strategy. And, it shows the importance of
an innovative and focused promotional effort. Ultimately, the White Castle experience highlights the importance of brand loyalty and the factors leading to that loyalty, while pointing to the need to adapt to a changing environment and continuing
to emphasize a firm’s basic strengths.
However, White Castle’s past may be brighter than its future. Some argue that
the firm has failed to capitalize on the uniqueness of its product offering and the
loyalty of its customers. Now that the heavyweights in the fast-food industry are
penetrating every niche in search of sales and profits, White Castle is in danger of
losing its competitive advantage to rivals willing to imitate some of its menu, particularly its low-price points and its 24–hour operating policy. What marketing
strategy would you recommend to White Castle to counter the threats to its business? What specific price, distribution, promotion, and product elements would you
propose and why? How would you deal with the growth in competition in the
fast-food market?
Sources
Oliphant, Jim. “White Castle: 70 Years of Sliders.” Columbus Monthly (February
1991): 26–32.
“Best-Run Companies.” Restaurants & Institutions (May 29, 1989): 48–49, 62.
Therrien, Lois. “McRisky.” Business Week (October 21, 1991): 114–122.
White Castle public relations materials.
“White Castle,” in Contemporary Cases in Consumer Behavior, Roger D. Blackwell, W. Wayne Talarzyk, and James F. Engel eds. (Chicago, IL: Dryden Press,
1990), pp. 255–270.