Harrington's Sort & Cull

Still Searching for the Old Magic

John Harrington
By  John Harrington , DTN Livestock Analyst
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Like an aging tycoon struggling to prove to the freshman class of hedge managers that he's still got it, McDonald's has been stumbling around for nearly a decade in search of reenergized corporate growth. We've seen new products come and go, menu size wheeze back and forth like a broken accordian, and poorly focused advertising campaigns desperately blowing from one demographic to the next.

While quarterly earnings have somewhat stabilized at the world's largest burger joint over the last few years, a world of small and larger changes installed under the "Golden Arches" has not succeeded in chasing off a troubled sense of economic stagnation. While the king of fast food remains on the throne, his subjects seem increasingly restless and market share slowly but steadily erodes.

This week saw the latest effort to right the great ship.

McDonald's announced Thursday that it would use fresh beef instead of frozen patties in Quarter Pounder burgers in most of its restaurants by mid-2018. After test-marketing the concept in more than 400 restaurants in Oklahoma and Texas, I suppose big wig executives are convinced that fresh beef will enhance customer satisfaction, delivering a burger that is juicier and packing better taste.

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Theoretically, I wouldn't disagree with the concept.

Actually, Ronald is stealing a page out of Wendy's playbook. Her square burgers have never known the insult of freezer burn. Still, the worried visionaries at McDonald's are proceeding cautiously. Beef patties for the company's signature Big Macs and other cheeseburgers would continue to be frozen, prepared ahead of time and kept warm.

I just hope the change team has carefully considered all of the consequences stemming from the new fresh beef strategy. There was one small paragraph in the official news release that made me scratch my head:

"Since prices are set by individual franchise owners, the effect on pricing is unknown. About 90% of the chain's 14,000 restaurants are independently owned and operated."

Unknown? Really?

At the risk of having my next McGriddle coupon canceled, permit me to offer an obvious drive-through answer to such a fast-food no-brainer. The impact of fresh beef pricing will be negative, either forcing menu pricing higher or causing narrower margins.

McDonald's planned use of fresh beef (so it would seem to me) will probably increase the cost of procurement and overhead in multiple ways: 1) prep time will increase; 2) on site trimming will increase product loss; 3) expense ensuring product safety will necessarily increase; and 4) the elimination of cold storage will increase the cost of ground beef procurement since seasonal opportunities (e.g., spring and fall cow cullings) will no longer be available.

I assume that the counter to all of these challenges in the winning business model is the generation of greater quarter-pounder volume. Again, it's a good theory.

John Harrington can be reached at harringtonsfotm@gmail.com

(ES)

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