It’s being reported today that McDonald's (MCD) is planning to introduce its Angus burger nationally this summer. The Angus burger is a premium burger (over $4.00 in some markets) with a larger patty and higher quality beef. The size of the burger did pose some operational challenges for some franchisees.
The timing of the launch Angus burger is puzzling at best. First, franchisee are burdened with the complexity of rolling out the premium coffee initiative this summer. To successfully accomplish the premium coffee strategy, incremental labor must be added to the store. Second, no QSR chain that is focused on selling premium product is seeing increased traffic. Third, a successful launch of any new product requires significant advertising support. Without a significant increase in the overall ad budget, advertising dollars will need to be shifted away from what is currently working (breakfast and the value message) to support the new burger. We already know the company has shifted some advertising dollars to support the launch of the specialty coffee business this summer.
MCD’s U.S. same-store sales growth remained surprisingly strong throughout 2008 despite the tough economic environment. The company states that half of this comparable sales growth has been driven by traffic with the remainder coming from increases in average check. The growth in average check in 2008 was driven solely by MCD’s 3%-4% price increase, which was partially offset by negative mix contribution in each quarter. One obvious explanation for MCD’s negative mix in the U.S. is that customers are trading down to the Dollar Menu, which has also helped to support traffic growth.
I recognize that the problem with an average check is you have a lot of different transactions in there. MCD’s breakfast business, which carries a lower average check, continues to grow faster than the rest of the day’s business. This hold true with drinks too. Last summer, the $1 sweet tea promotion was a huge success and the drip coffee is up more than 30%.
The point to all this is that in 2008, the incremental consumer that was going to a McDonald’s was there for the “value” not “premium” products.