McDonald’s has managed to outperform its competitors in recent quarters, thanks to price increases across its menu and higher-income customers opting for its McNuggets and Big Macs. However, the fast-food giant is facing a challenge with low-income diners cutting back on their visits, leading to a decline in U.S. traffic in the third quarter. As McDonald’s prepares to announce its fourth-quarter results, analysts are expecting a modest 4.4% growth in U.S. same-store sales, compared to the impressive 8.1% growth seen in the third quarter. The pressure is on for McDonald’s and other fast-food chains to find new ways to grow traffic, as price hikes alone won’t be enough to sustain sales.
In response to the need for increased customer satisfaction and more frequent visits, McDonald’s has launched its “Best Burger” initiative. Rather than changing the beef patty itself, the focus has been on improving the cooking and assembly processes. By giving the patties more breathing room on the grill, the burgers gain more flavor. Only six patties are cooked at a time, allowing for better taste concentration. Onions are added before cooking to soak up the patty’s juices. The cooked patties are kept hotter, ensuring warmth upon arrival to the customer. Other improvements include better-melted cheese, upgraded buns, and more special sauce for Big Macs.
Though these changes may seem small, they are significant for improving McDonald’s core products while staying true to their brand. Mark Kalinowski, CEO of Kalinowski Equity Research, believes that the “Best Burger” initiative is a positive step forward for the company. McDonald’s has been gradually rolling out the improved burgers since last year, but they are now available at all locations nationwide. International markets like Australia and Canada, where the improved burgers have already been implemented, have experienced better performance compared to other major markets. McDonald’s CEO, Chris Kempczinski, has expressed confidence in the initiative’s impact, with plans to expand it to 70 markets by the end of 2023.
To generate awareness and excitement around the new burgers, McDonald’s is leveraging a familiar character from its advertising history: the Hamburglar. In markets where the “Better Burger” is available, the chain has aired a TV commercial featuring the mascot emphasizing the improved taste. The company’s website also prominently displays an endorsement from the Hamburglar. These marketing efforts aim to communicate the changes to customers and entice them to give the upgraded burgers a try.
While McDonald’s is optimistic about the potential impact of the “Best Burger” initiative, Wall Street analysts have mixed opinions. Wells Fargo analyst Zachary Fadem sees it as a potential driver for growth in 2024. However, the overall impact remains uncertain. Analyst Mark Kalinowski estimates that the improvements could contribute to a 0.5% increase in overall sales in 2024. On the other hand, BTIG analyst Peter Saleh is more skeptical and believes that the quality of food at fast-food concepts should continuously improve over time, questioning whether this initiative alone will drive traffic.
Despite the skepticism, there are promising early signs that customers are eager to try the upgraded burgers. Loop Capital analyst Alton Stump reports that “Better Burger” drove a 10% increase in burger transactions on average, even without local-level advertising until recently. These early positive indicators suggest that the improved product is resonating with customers and may lead to increased sales.
McDonald’s “Best Burger” initiative represents a strategic effort to enhance the quality and flavor of its core burgers. The company aims to convince customers that their food and drinks are worth the price, ultimately driving more frequent visits. While the overall impact on sales remains uncertain, the early signs of success and positive feedback from customers are encouraging. McDonald’s will continue to rely on innovative marketing strategies and product enhancements to stay competitive in the ever-evolving fast-food industry.
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