In the wake of its decision to discontinue the Angus Third Pounder line of burgers, McDonald’s Corp. confirmed Monday that a new trio of dressed-up Quarter Pounders is ready to replace the outgoing premium burgers nationwide next month.
The three new flavors, which were tested for nine months in Sacramento, Calif., and Toledo, Ohio, are Deluxe, Habanero Ranch, and Bacon and Cheese. The new varieties will carry a different bun containing more whole grains, while the original Quarter Pounder will keep its traditional bun.
The operator or franchisor of more than 14,000 quick-service restaurants in the United States has struggled the first part of the year to drive sales in an environment where people are opting more for low-price, low-margin items like McDonald’s Dollar Menu offerings or the discounts to which most restaurants, including the Golden Arches, have turned recently.
Same-store sales fell 1.2 percent in the United States in McDonald’s first quarter, a period in which its restaurant-level margins decreased 1.4 percent to 16.2 percent of sales. Comparable sales increased just 0.7 percent in the United States in the month of April.
Though the Angus Third Pounders carried higher prices than core burgers, often between $4 and $5, the sandwiches usually did not sell more than a few dozen units per day per store, which caused as much frustration among McDonald’s franchisees as the low-margin Dollar Menu did, said Richard Adams, a former McDonald’s owner-operator who now consults franchisees as owner of San Diego-based Franchise Equity Group.
The McDonald’s owner-operators he consults have responded positively to news of the new Quarter Pounders so far, Adams said, but the sandwiches’ effect on profit margins and traffic would depend on their price point, which McDonald’s has not yet disclosed.
“The franchisees have known for months, and everyone’s eager to get it done,” Adams said. “It’s a baby step. Any time you can get a product out of the restaurant that’s selling only a few per day, that means less inventory and spoilage, so that’s good. This new Quarter Pounder has no new investment in new equipment or remodeling, which is also good. But a lot of it will be determined by the selling price."
The introductory price point would also determine how much the new burgers could help sales and margins, Adams added. “They discounted the McWrap so deeply in the introductory period that we won’t know for a long while whether or not that’s a good deal for the franchisees,” he said. “The franchisees vetoed a $1 introductory price, but some co-ops did $2 to start, and there were still too many McWraps going out the door for too steep a discount. I hope they don’t start too discounted with the new Quarter Pounder.”
Darren Tristano, executive vice president of Chicago-based Technomic Inc., agreed that price would matter for the new Quarter Pounders and that McDonald’s likely would aim for something below the $4 mark. A bigger positive development would be that McDonald’s has new-product news for its advertising momentum, yet the item being introduced has four decades of brand equity.
“I think the news should be viewed as a positive for the brand and the franchisees,” said Darren Tristano, executive vice president of Chicago-based Technomic Inc. “They’ll have opportunities to put the marketing focus on one of the best burgers McDonald’s has. … It’s still a good burger and a signature item, so why compete with it?”
Tristano added that transitioning back to a quarter-pound burger from a third-pound burger is likely more aligned with consumer trends away from excess calories and the higher prices that come with bigger portions. “If McDonald’s a decade ago was accused of ‘super-sizing,’ they’re more in line now with right-sizing the menu with this move,” he said.
Adams, however, said McDonald’s could stand to downsize the menu further, as too much complexity in the back of the house has led to subpar performance at the counter.
“It’s a disaster in the kitchen, and service has gone down because of that,” Adams said. “When kitchen operations become this complicated, they’ll never get the service fixed and won’t get back to growing in the U.S.”
Oak Brook, Ill.-based McDonald’s operates or franchises more than 34,000 restaurants in more than 120 countries.