A man drinks a Coca Cola and eats a Big Mac at a McDonald's in Cologne, Germany, on May 25, 2015.
Oliver Berg | image alliance | fake images
McDonald's has improved its burgers, but it's unclear whether its sales will get the same boost.
The fast food giant has outperformed its rivals in recent quarters, helped by price increases across its menu and higher-income customers opting for its McNuggets and Big Macs. Still, McDonald's U.S. traffic fell in the third quarter as low-income diners cut back on visits.
When the company announces its fourth-quarter results on Monday morning, analysts expect U.S. comparable sales growth of just 4.4%, according to StreetAccount estimates. This is a clear lag compared to the 8.1% growth in comparable sales in the United States during the third quarter.
McDonald's and rival fast-food chains will face pressure to increase traffic this year. Diners won't put up with the double-digit price increases that boosted sales last year. Instead, chains have to convince their customers that their food and drinks are worth their prices and more frequent visits.
Enter McDonald's “Better Burger” initiative: small tweaks to the chain's burgers that create a noticeably tastier product.
“Our goal was to improve the quality, taste and overall dining experience of our core burgers, but we wanted to stay true to the flavors everyone loves,” Mason Smoot, director of McDonald's U.S. restaurants, said at an event. with the media on Monday.
McDonald's did not change the beef burger itself, but rather the cooking and assembly processes. The grills give the burgers a little more room to breathe while they cook. For more flavor, only six are cooked at a time, instead of eight.
Onions are also added before cooking the burgers so they can absorb their juices. Cooked burgers stay hotter, so the overall burger is still hot when it reaches the customer. The cheese melts better, the buns get better, and the Big Macs get more special sauce.
McDonald's previous version of the double cheeseburger, on the left, and the “Best Burger” version, on the right.
Source: Amelia Lucas
“This is a step in the right direction to improve some of their core products, but also to stay true to who they are,” said analyst Mark Kalinowski, CEO of Kalinowski Equity Research.
McDonald's started rolling out better-tasting burgers about a year ago, but eventually launched them everywhere in the country.
Some of the company's largest international markets, such as Australia and Canada, have already implemented “Best Burger.” Australia and Canada have outperformed some of McDonald's other big international markets, which can be attributed, at least in part, to improvements in burgers, Kalinowski said.
At McDonald's investor day in December, CEO Chris Kempczinski said the “Best Burger” was on track to reach 70 markets by the end of 2023. By the time 2026 ends, the company expects nearly all of its markets to serve upgraded burgers. .
“With initiatives like Best Burger, we're making small changes that add up to big differences that our customers are really noticing,” he told investors.
McDonald's is promoting the changes through a familiar enemy: the Hamburglar, a McDonaldland character used in its advertisements dating back to the 1970s. In markets with “Better Burger,” the chain aired a television commercial featuring the mascot touted the improved taste of hamburgers. McDonald's own website now displays Hamburglar's endorsement on the home page.
The changes affect all McDonald's burgers except the quarter-pounder. The chain already gave that menu its own makeover in 2018, when it switched from frozen meat to fresh meat for those burgers. That 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 on whether the “Better Burger” can drive meaningful growth.
In a research note last month, Wells Fargo analyst Zachary Fadem named “Best Burger” as a “profit driver” for McDonald's in 2024. However, it's still unclear how much boost the company expects to see with The initiative.
Kalinowski estimates the changes could increase overall 2024 sales by 0.5%.
“I think the net effect of this will be positive, but it's a subtle thing,” Kalinowski said.
Others are more skeptical.
“I doubt this will boost traffic,” said BTIG analyst Peter Saleh. “I think this is probably just part of the process of improving the game over time. A lot of these concepts have to improve the quality of their food over time.”
But there are some promising early signs that customers want to try the upgraded burgers for themselves.
“Despite receiving no local advertising until this week, our contacts indicated that Better Burger drove an average 10% increase in burger transactions year to date,” Loop Capital analyst Alton Stump wrote in a note to customers in May.
Don't miss these CNBC PRO stories:
