McDonald’s launches ‘Best Burger’ ahead of earnings report

A man drinks a Coke and eats a Big Mac at a McDonald’s in Cologne, Germany, May 25, 2015.

Oliver Berg | image alliance | Getty 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 on its menu and higher-income customers opting for McNuggets and Big Macs. However, McDonald’s U.S. traffic has declined in the third quarter as low-income customers reduced their visits.

When the company announces fourth-quarter results Monday morning, analysts expect U.S. same-store sales growth of just 4.4%, according to StreetAccount estimates. That’s a clear lag behind U.S. same-store sales growth of 8.1% in the third quarter.

McDonald’s and rival fast food chains will face pressure to increase traffic this year. Customers won’t tolerate the double-digit price increases that fueled sales last year. Instead, chains must convince their customers that their food and drinks are worth their prices – and more frequent visits.

Enter McDonald’s “Best Burger” initiative: small tweaks to the chain’s burgers that create a noticeably tastier product.

“Our goal was to improve the quality, flavor and overall experience of our core burgers, but we wanted to stay true to the flavors everyone loves,” Mason Smoot, head of McDonald’s U.S. restaurants, said at a media event Monday.

McDonald’s didn’t change the beef patty itself, but rather the cooking and assembly processes. Racks give the meatballs a little more breathing room while cooking. For more flavor, only six are cooked at a time, instead of eight.

Onions are also added before the meatballs are cooked so they can absorb the meatball’s juices. The cooked patties are kept hotter, so the overall burger is still hot when it reaches the customer. The cheese melts better, the sandwiches are improved, and the Big Macs get more of their own special sauce.

McDonald’s previous version of the double cheeseburger, left, and the “Best Burger” version, right.

Source: Amelia Lucas

“This is a step in the right direction to improve some of their core products, but also stay very true to what they are,” said analyst Mark Kalinowski, CEO of Kalinowski Equity Research.

McDonald’s started rolling out the better-tasting burgers about a year ago, but eventually rolled them out in locations nationwide.

Some of the company’s major international markets, such as Australia and Canada, have already implemented “Best Burger.” Australia and Canada have outperformed some of McDonald’s other large international markets, which can be at least partly attributed to burger improvements, Kalinowski said.

At McDonald’s Investor Day in December, CEO Chris Kempczinski said “Best Burger” is on track to reach 70 markets by the end of 2023. By the end of 2026, the company expects nearly all of its markets they will serve the improved 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 friend-foe: the Hamburglar, a McDonaldland character used in its ads dating back to the 1970s. In markets featuring “Better Burger,” the chain aired a television commercial in which the mascot touted the improved taste of the burgers. McDonald’s website now features the Hamburglar endorsement on the home page.

The changes affect all McDonald’s burgers except the Quarter Pounder. The chain already revamped its menu in 2018, when it switched from frozen to fresh meat for those meatballs. This change led McDonald’s to gain market share in the hamburger category for the first time in five years.

But Wall Street has mixed opinions about whether the “Best Burger” can fuel significant growth.

In a research note last month, Wells Fargo analyst Zachary Fadem called “Best Burger” a “positive factor” for McDonald’s in 2024. However, it’s not yet clear how much growth the company expects to see from the initiative.

Kalinowski estimates the changes could increase overall sales by 0.5% in 2024.

“I think the net effect of this will be positive, but it’s pretty subtle,” Kalinowski said.

Others are more skeptical.

“I doubt this will increase traffic,” BTIG analyst Peter Saleh said. “I think this is probably just part of the process of improving your game over time. A lot of these concepts need to improve the quality of their food over time.”

But there are some promising early signs that customers want to try the improved burgers for themselves.

“Despite receiving no local publicity until this week, our contacts indicated that Better Burger has led to an average 10% increase in burger transactions to date,” wrote Loop Capital analyst Alton Stump in a note to clients in May.

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