Filed under: Company News, McDonald’s, Earnings, Industry News, Investing
McDonald’s (MCD) is hoping that it can “guac” and roll out of its latest funk, but it may have another thing coming. The world’s largest burger chain began testing guacamole as a gourmet sandwich topping earlier this year, and the ingredient’s been sticking around in regional test markets.
The fast-food giant kicked off the initiative in May in Denver. This is the home turf of Chipotle Mexican Grill (CMG), the market darling among fast-casual operators — and a company that McDonald’s once owned a controlling stake in before it spun it off and took it public nearly a decade ago.
Guacamole is a popular staple at Chipotle, and while the chain certainly isn’t the first burrito roller to add mashed avocados, it is probably the one that has made it cool. Chipotle charges extra for adding guacamole, unlike the other ingredients on its assembly line. That’s an important distinction, since Chipotle is positioning guacamole as something that diners are willing to pay nearly $2 more to have scooped into their food.
To that end, McDonald’s test not only involves offering Tex Mex-style burgers and chicken sandwiches topped with guacamole made from Hass avocados, but it also lets customers pay an additional 89 cents to have guacamole added to any menu item or served on the side as a dip for fries, McNuggets or anything else that floats your proverbial McBoat.
The Long Way Back
McDonald’s used to be on top of the world. When it snapped a stunning nine-year streak of monthly positive year-over-year comparable-store sales in October 2012, many figured it was just a fluke. There was no way that the iconic fast-food chain would keep stumbling. It was rolling out premium sandwiches, salads and beverages at higher price points than the traditional “Dollar Menu” fare that many associate with McDonald’s.
It didn’t pan out that way.
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Burger-hungry patrons simply upgraded to the gourmet burger establishments that are sprouting up across the country. Folks who wanted something a little better without sacrificing speed of execution simply queued up at Chipotle and other fast-casual concepts. In other words, McDonald’s was trying to reach an audience that had already found what it wanted somewhere else.
Things have been particularly bad close to home. Domestic locations have clocked in with negative year-over-year comparable-restaurant sales for eight of the past nine months and each of the past three quarters.
Reputations Are Hard to Change
Guacamole won’t be the first time that McDonald’s tries to buy its way into a higher class of customer, and there’s little reason to expect it to succeed this time around. If Angus beef, white cheddar and iced caramel mocha haven’t turned the tide, why should cheap guacamole do the trick? It’s just the next trendy train that McDonald’s is boarding.
Try as it might — and McDonald’s is trying — it just can’t shake the stigma that it’s not serving quality food. A Consumer Reports survey of fast-food chains earlier this year found McDonald’s ranking at the very bottom in the burger category on taste among the country’s 21 largest operators.
This would seem to point to guacamole as a smart way for McDonald’s to try to improve its flavor profile. Unfortunately, other studies point to longer wait times at McDonald’s, and the company itself warned its franchisees last year that service complaints are on the rise. In other words, adding toppings and expanding the menu is either confusing the customer, slowing down the prep process or resulting in more incorrect orders.
If guacamole is the next bold initiative that fails to bear fruit, will McDonald’s scale back its offerings and ambitions and get back to basics? It would be the Hollywood ending that would make this the perfect tale, but unfortunately that train may have also already left the station.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald’s. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. For a list of high-yielding dividend stocks to complement your portfolio, check out our free report.
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Source: Investing
