Will bigger burgers bring back McDonald's customers?(Read article summary)
McDonald's will be offering a trio of 1/3 lb. burgers in the US beginning in May in an effort to win back customers. McDonald's market share has slid in recent years as a growing number of 'fast-casual' competitors have entered the burger market.
McDonald's is attempting to woo customers back with a well-worn tactic: A bigger burger.
Beginning this month, the fast-food franchise will introduce a trio of "Sirloin Third Pound" hamburgers to its US locations for a limited time. The suggested retail price is $4.99, making it one of the most expensive items on McDonald's menu.
As the name suggests, the burgers will weigh one third of a pound. The three choices are bacon and cheese, lettuce and tomato, and a "steakhouse" option with mushrooms and onions.
McDonald's earnings have disappointed in recent years as a growing number of "fast-casual" competitors have entered the market. As a February 2015 report from the Australian market research company IBISWorld notes, "Relatively new players like Chipotle and Five Guys that offer customizable, gourmet meals have stolen market share away from traditional fast food operators such as McDonald’s and Burger King."
McDonald's has also faced increased criticism over the nutritional content and quality of its food. The company has responded by adjusting its menu: IBISWorld reports that the restaurant's lower-fat and lower-calorie offerings have been the primary drivers of a rebound in revenue in recent years.
Perhaps the new burgers are a sign that the company is falling back on traditional marketing tactics. "It appears that McDonald's is using a tried and true strategy from online marketing: design an experiment and measure the results," says Eli Robinson, head of FranchiseHelp.com, in an e-mail interview. “I have no idea whether or not the new premium burgers will be the key to unlocking growth.”
Andrew Alvarez, an industry analyst at IBISWorld, says that McDonald's long-term success or failure hinges on its ability to pare down its menu while increasing the quality of its food. "While the company has made some strides in simplifying its menu offerings, it is still much to varied to be considered streamlined," he says.
"That said," Mr. Alvarez continues, "the vast discrepancy between dollar-menu value items and the premium price of the sirloin burger could end up ultimately harming earnings for the company. The quality of the meal is also at stake; that is, should the meal be prepared (pre-cooked instead of cooked to order) in a way that is inferior to its competitors, it will not likely be a success. Lastly, while this is a step in the right direction to correct its image, the company still has a long way to go in terms of simplifying its menu and convincing its consumers that its ingredients possess the same quality as its fast-casual competitors."
In 2013, the company dropped its Angus Third Pounders after customers complained about the cost, which at most locations was between $4.39 and $4.49. What's different this time around?
Robinson says, “It's a tactic, and generally the business itself will have the best idea of how to implement the correct tactics. From a strategy perspective, offering new menu items is a sign that McDonald's is not content with the current growth prospects."