Monday, July 25, 2011

McCafe on a bun?

This should sound familiar: Restaurant upstarts take a commodity product you’d find on any menu, raise the quality and price, and cultivate a cult-like following.

After Starbucks did it with coffee, McDonald’s eventually responded with McCafe, a line-up that promises quality beverages at a much lower price. By all accounts, it’s been a smash.

So Big Mac isn’t waiting as long to employ the same defense against upscale burger purveyors like Five Guys, Smashburger and Bobby Flay. The rise of the so-called premium burger segment is providing McDonald’s with the cover to slide higher quality choices into its mix and trump the newcomers on price, COO Don Thompson explained last week.

“Frankly, I think it’s good for us,” he told investors. “It's a benefit because those premium burgers have higher margin and we've got some of those same premium burgers.”

Translation: It’s McCafe on a bun.

Thompson noted that the tack is already working with McD’s Angus one-third-pound burgers. Expect to see more choices in that price and quality strata, he advised during the analysts conference call.

Thompson noted that those new choices could be imported from McDonald’s operations in Europe, including the 1955, a burger the chain is marketing in Germany with a fictional pedigree. Commercials suggest the oversized bacon burger was invented by a housewife in Chicago, whose recipe was just recently discovered by a McDonald’s crewmember in Deutschland.
“Europe has already tested the 1955 very successfully,” Thompson observed.

He also mentioned the Big Tasty, another premium choice that McDonald’s started offering in Europe, with and without bacon, around the start of 2011.

Thompson didn’t mention the Pub Style Burger, a product that drew considerable attention from bloggers after word leaked of its test in the Midwest. But he did note that many of the analysts on the call were aware of some U.S. initiatives featuring premium burgers.

“I'm really looking forward to us having even more premium burgers,” he commented.

Price-wise, the entries will be positioned as a value relative to burgers of comparable quality. Thompson said McDonald’s can afford to undercut the competition because of “our supply chain and the efficacy of it.”

He also noted that the premium play will extend to chicken. Some U.S. markets are already offering premium chicken sandwiches.

No comments: