By Eric Newman

In the world of fast food, the past 12 months have been a true litmus test, separating those chains which have consistently demonstrated terrifying branding prowess and those who desperately need to sharpen their strategic claws.

The industry faced a continuing healthier-food trend, weakened consumer confidence, rising gas prices and increased commodities costs in the year past.

Proving that it's on top for a reason, No. 1 McDonald's posted a 6.1% sales gain in 2007, reaching nearly $29 billion, per Technomic, Chicago. Meanwhile, Wendy's, which was recently purchased by Arby's parent Triarc for $2.3 billion, fell from No. 3 to No. 5, as Starbucks and Subway muscled ahead, with 22% and 6.4% sales growth, respectively. Burger King remains No. 2.

Further adding to those gains is the fact that quick-service restaurant players are set to benefit from a widespread trading down among restaurant consumers. Many are swapping their pricier tickets at casual and fast casual chains for the cheaper, more convenient and increasingly broader range of products available at the fast feeders, according to Technomic president Ron Paul.

"The burger and sandwich players are all very well positioned, since they have attractive price points and are dealing with items that consumers like to eat,²"said Paul.

Brewing Battle
Fast food chains have pretty much ignored Starbucks until recently. McD's, once known for coffee that tasted like warm, old soda, now has a decent brew.

The chain went after Starbucks with its own line of premium coffees and is prepping to roll out its McCafé retail formats nationwide. Dunkin' Donuts also has benefited from a general rise in take-out coffee sales (at the expense of brands like Maxwell House): Its sales jumped 7% last year, per Technomic.

Despite strong growth, Starbucks is having issues of its own, among them market cannibalization that has required it to slow down new store openings in 2008. The brand also brought back its heritage logo and a new brew, Pike Place, after undergoing a massive retraining effort to make baristas more consumer-friendly.

Chickening Out Chicken is quickly emerging as the protein of choice. Burger joints like McDonald's and Burger King have cashed in on the now roughly $16 billion category, using the versatile protein to create a larger assortment of offerings.

This even applies to breakfast. In launching its Southern Chicken Biscuit last month, McDonald's joined Hardee's, Chick-fil-A and others in offering chicken sandwiches for breakfast. That's put new pressure on the chicken chains—most notably Kentucky Fried Chicken. KFC has responded by adding a grilled chicken option to its menu.

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