Bloomberg reported that MCD will be rolling out its new premium Angus burgers nationwide tomorrow, which is one month earlier than rumored. The company had previously stated that the rollout would come in 2010. The new line of burgers will be priced at about $4 relative to its Big Macs and Quarter Pounders at about $3 and its ever popular Dollar Menu. Going premium has not worked for MCD's competitors in this current environment, particularly CKR and BKC.
This premium priced offering may have made some sense about two years ago when MCD began developing the Angus burger in response to a request from franchisees in southern California for a product to compete with Carl's Jr.'s more premium products. Since then, Carl's Jr.'s same-store sales have slowed significantly and even turned negative in the last two quarters, which points to the difficulty of trying to sell premium priced products in today's environment. Consumers do not want to spend a lot of money when they go into a fast food restaurant. So, the obvious question is why now?
MCD knows how to launch a new product and this new Angus burger will inevitably receive a lot of attention within QSR and spur a lot of trial. MCD management knows this so there is some speculation that the company is rolling out its premium burger now, despite the economy, to offset sales weakness. For reference, I am sure it is no coincidence that the rollout was scheduled for July seeing that the company is lapping a 6.7% U.S. comparable sales number in July. It has long been my belief that MCD's premium coffee strategy will not provide the sales catalyst investors are expecting and the timing of this premium burger rollout only strengthens my argument that the early read on MCD's coffee strategy is not good.
To be clear, the Angus burger will provide a lift to MCD's numbers in the near-term as the company will be heavily promoting its introduction. And, as I said once before, it could also help the company's coffee sales as I would not be surprised to see a coupon for a free latte with the purchase of an Angus burger to boost McCafe sales or vice versa! This nationwide launch is a definite negative for CKR and Carl's Jr. The concept's premium menu focus was already hurting traffic, which has been negative for the better part of the last two years. MCD's presence in the premium segment of QSR will only increase CKR's pain.
