A man drinks a cola and eats a Big Mac at a McDonald’s in Cologne on May 25, 2015.
Oliver Berg | picture alliance | Getty Images
MC Donalds has upgraded its burgers — but it’s unclear whether its sales will see the same boost.
The fast-food giant has outperformed its rivals in recent quarters, helped by price increases across its menu and by higher-income customers cutting down on its McNuggets and Big Macs. Still, traffic at McDonald’s in the U.S. fell in the third quarter as low-income diners reduced their visits.
When the company reports its fourth-quarter results Monday morning, analysts expect U.S. like-for-like sales to grow just 4.4%, according to StreetAccount estimates. That’s an obvious lag compared to U.S. same-store sales growth of 8.1% in the third quarter.
McDonald’s and rival fast-food chains will be under pressure to increase traffic this year. Guests won’t be able to stomach the double-digit price increases that boosted sales last year. Instead, chains must convince customers that their food and drinks are worth the price — and require more frequent visits.
Join McDonald’s Best Burger Initiative: Small changes to the chain’s burgers make for a much tastier product.
“Our goal was to improve the quality and taste and overall eating experience of our core burgers, but we wanted to stay true to the taste that everyone loves,” Mason Smoot, McDonald’s U.S. chief restaurant officer, said at a Monday Media event.
McDonald’s hasn’t changed the beef patty itself, but rather the cooking and assembly processes. The grill grates give the patties a little more room to breathe while cooking. For more flavor, only six are cooked at once instead of eight.
Onions are also added before the patties are cooked so that they can absorb the juices from the patties. The cooked patties are kept hotter so the overall burger is still warm when it reaches the customer. The cheese melts better, the buns are enhanced, and Big Macs get more of their special sauce.
McDonald’s previous version of the double cheeseburger (left) and the “Best Burger” version (right).
Source: Amelia Lucas
“This is a step in the right direction to improve some of their core products while staying true to their essence,” said analyst Mark Kalinowski, CEO of Kalinowski Equity Research.
McDonald’s began introducing the better-tasting burgers about a year ago, but eventually rolled them out to all locations across the country.
Some of the company’s key international markets, such as Australia and Canada, have already implemented Best Burger. Australia and Canada have outperformed some of McDonald’s other major international markets, at least partly due to improvements in burgers, Kalinowski said.
At McDonald’s Investor Day in December, CEO Chris Kempczinski said Best Burger was on track to reach 70 markets by the end of 2023. By the end of 2026, the company expects that almost all markets will offer the improved burgers.
“With initiatives like Best Burger, we make small changes that result in big differences that our customers really notice,” he told investors.
McDonald’s is promoting the changes through a familiar enemy – the Hamburglar, a McDonaldland character used in its 1970s ads. In markets with the “Better Burger,” the chain aired a TV commercial in which the mascot praised the burger’s improved taste. A recommendation from Hamburglar can now be found on the entire homepage of McDonald’s own website.
The changes affect all McDonald’s burgers except the Quarter Pounder. The chain gave this staple its own makeover back in 2018 when it switched from frozen to fresh beef for these patties. This change resulted in McDonald’s gaining market share in the burger category for the first time in five years.
But Wall Street has mixed opinions about whether the Best Burger can spur significant growth.
In a research note last month, Wells Fargo analyst Zachary Fadem called Best Burger an “upside driver” for McDonald’s in 2024. However, it’s still unclear what boost the company expects from the initiative.
Kalinowski estimates the changes could increase total sales by 0.5% in 2024.
“While I think the overall effect will be positive, it will be subtle,” Kalinowski said.
Others are more skeptical.
“I doubt this will boost traffic,” said BTIG analyst Peter Saleh. “I think it’s probably just part of the process of improving your skills over time. Many of these concepts need to improve the quality of their food over time.”
However, there are some promising early signs that customers may want to try the improved burgers for themselves.
“Although we have not received any advertising at the local level as recently as this week, our contacts indicate that Better Burger has resulted in an average increase of 10% in burger transactions so far,” Alton Stump, an analyst at Loop Capital, wrote in May in a customer message.
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2024-02-04 13:00:01
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