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Study Finds Limited Interest in LTOs

Source: The NPD Group

Source: The NPD Group

The Philly Cheesesteak Burger available for a limited time at Carl’s Jr. and Hardee’s is a beef patty topped with sliced steak, melted Swiss and grilled peppers and onions. It sounds good but new research from The NPD Group says only one in five customers is likely to order it. That’s not because the Philly Cheesesteak Burger isn’t appealing but because diners are less inclined to try new menu items than many restaurant operators may think.

Overall, about 30% of consumers say they will try a new menu item when they dine out. Of these consumers, new permanent-menu items are more attractive than are limited-time items, according to NPD’s report, “Menu Item Trial:  Motivating First-Time and Repeat Orders.”

When consumers do opt for something new, it’s generally of the same food type as what they had originally planned to order. Snacks are the outlier here: any other type of food has an equal chance of being substituted.

Surprising, diners at casual-dining restaurants are the most receptive to new menu items (40%). At midscale (including family dining) restaurants, 25% will try a new item while at QSRs—which are most wedded to limited-time offers—just 19% say they will try something new. Fast-casual restaurants have the lowest percentage (12%) of new-item explorers.

At quick-service restaurants, sandwiches are the new items most likely to be ordered, followed by main dishes and breakfast foods. At casual, midscale and fast-casual restaurants, main dishes and sandwiches finish first and second, respectively.

For QSRs, especially, this data is troubling because they rely on new menu items to draw customers. That reliance has increased. Data compiled in 2012 by Mintel for BurgerBusiness.com showed that the number of limited-time offers at QSRs increased 48% during the 12 months ended May 2012.

Wendy’s High-Low Pricing Pays Off

[Update: Watch for the Ciabatta Bacon Cheeseburger to be Wendy's next premium burger.]
The answer is yes. The question was whether a national quick-service burger chain could successfully implement a true “barbell” menu/pricing strategy in this economic and consumer environment. McDonald’s and Burger King have, for now at least, backed off premium-price items to focus on their value menus.  Carl’s Jr. and Hardee’s aren’t bothering with building a low end; Jack in the Box has low-price specials but not a value meal. Sonic hasn’t developed a strong high end.

Spokeswoman "Red" promotes both high- and low-end menu items.

Spokeswoman “Red” promotes both high- and low-end menu items.

But Wendy’s Q4 results prove that the answer is yes. Wendy’s dared to promote both high-end sandwiches like its Pretzel Bacon Cheeseburger and Bacon Portabella Melt on Brioche along with its budget-level Right Size, Right Price menu.

Wendy’s handled this difficult balancing act this well: For the quarter ended Dec. 29, 2013, North America company same-store sales were up 3.1%. For full-year 2013, its comp sales rose 1.9%. Average unit sales rose 2% to $1.51 million. For 2014 the company projects a 2.5% to 3.5% gain in same-store sales. Find another major chain that is that confident. Jack in the Box, by contrast, expects a 1.5% to 2.5% increase comp sales during its fiscal 2014.

Speaking at the 16th Annual ICR XChange conference today, Wendy’s CEO Emil Brolick said the chain has “regained our position as the innovator in the marketplace,” and the numbers allow him to crow. He said the high-low pricing strategy works only if you can create value at both the low- and high-price ends. Wendy’s is uniquely positioned to achieve it because “not every brand has those quality characteristics that we do,” he said.

At present Wendy’s is simultaneously advertising two 99¢ items (Spicy Chipotle Crispy Chicken and Spicy Chipotle Jr. Cheeseburger) and a full-price sandwich (Asiago Ranch Club Chicken). I’m still expecting Wendy’s 2014 menu calendar to include sandwiches (perhaps the Spicy Santa Fe line it tested) on Cheddar-jalapeňo buns to continue its leadership with innovative buns.

After 100 company and 99 franchised restaurants were “image activated” or remodeled in 2013, Wendy’s expects 200 company and 150 to 200 franchised locations to get a makeover this year. The company expects 35% percent of its North America system to be reimaged by the end of 2017.

Can the Diner Reinvigorate Restaurants?

Two new marketing campaigns that draw on the timeless appeal of the American diner manifest the restaurant industry’s current malaise and perhaps provide its remedy as well.

McDonald's American Vintage campaign in Japan celebrates the iconic diner.

McDonald’s American Vintage campaign in Japan celebrates the iconic diner.

The latest NPD Group/CREST data shows that the restaurant business—here and in several other countries—has hit the doldrums. In short, customer traffic isn’t increasing. “We’re seeing flat or declining Informal Eating Out markets and heightened competitive activity across all the geographies,” McDonald’s Corp. CEO Don Thompson told analysts last October. Just last week, Ruby Tuesday CEO James J. Buettgen summed up its current strategy this way: “Our management team, our team at the restaurant support center and our teams in the field are all aligned with one goal: improving traffic at Ruby Tuesday.”

Putting butts in seats is the inelegant but concise goal of every restaurant. And it isn’t easy because consumers aren’t just more careful with their spending; they’re also more careful with their affections. It takes a lot to bring them in the door and even more to win their hearts. New menu items aren’t doing it. Robotic, dispassionate social-media marketing (“Hi. What is your favorite item on our menu?”) doesn’t do it.

Time to evoke—if not emulate—the diner.

Dennys_LogoDinerDenny’s new campaign positions it as “America’s diner.” A company release explains that it is “celebrating the 60-year-old brand’s authentic diner heritage and ‘come as you are’ atmosphere.” Says Francis Allen, Denny’s Chief Brand Officer, “Everything we are rolling out with this campaign aims to capture and replicate the warm, unique environment that can only be found at your local Denny’s diner, where the sounds from the kitchen and conversations between customers and friendly, spirited servers create that welcoming, familiar feeling that has our guests falling in love with Denny’s all over again.”

There are no fancy new menu items with the campaign. One commercial promotes $4 breakfast sandwiches with hash browns. Another touts burgers, pancakes and the joy of eating breakfast for dinner.

What define this vision of the diner are its casualness and its humanness. The diner is a democratic place where you needn’t dress up and where servers chat with customers and everyone is happy. It’s utopian and Rockwellian and might well be delusional, but it points to something that may be missing from restaurants. Honest human engagement.

McD_UK_1955_DinerWe’ve all seen lousy food and service at a diner. Jack Nicholson had trouble getting what he wanted at a diner in 1970’s “Five Easy Pieces.” But that memorable exchange was at least between a customer and server, not between a diner and an iPad, order kiosk or tweet. The diner’s humanity is five pieces of its charm.

The American diner is so iconic that evoking it works around the world. McDonald’s “American Vintage” advertising campaign in Japan right now evidences that. The inauthenticity of the cooked-egg-topped Diner Double Beef burger being sold hardly matters because the pitch here is to Japanese consumers’ vision of the American diner. TV spots show kids dancing to “Johnny B. Goode” on a jukebox. These could be scenes from Barry Levinson’s 1982 film “Diner” or “Happy Days.”

There’s really nothing special in the build of the 1955 Burger that McDonald’s has marketed all over Europe. It’s a burger with grilled onion and steak sauce. But the name allows McDonald’s to market the burger with TV spots evoking the 1950s diner. Watch this TV commercial—with Phil Phillips’ 1959 hit “Sea of Love” as the background—that accompanied the 1955 Burger’s return to the UK last fall. McDonald’s is selling the diner not the burger, which is OK because that diner atmosphere is what consumers want from restaurants all levels, from quick-service up.

Listen to Buettgen explain to analysts the kind of place he wants Ruby Tuesday to become: “Our brand transformation strategy today is focused on reclaiming Ruby Tuesday’s heritage as a casual, affordable, energetic and approachable brand, on delivering what guests want and expect from Ruby Tuesday. The development and implementation of our strategy is based on market opportunity and consumer research and informed by management experience and insights. We believe this positioning will make the brand more broadly appealing and appropriate for a wider variety of dining occasions.”

Buettgen used the term “energetic” repeatedly in his presentation to analysts and I wasn’t sure what he meant. But now I think he sees the need to infuse human energy through honest human engagement into each of his restaurant. He wants the casual, affordable, approachable buzz that exists in the best diners. I think that’s what a lot of restaurants are lacking and seeking.

McOperators Don’t Buy Dollar Menu & More

McD_DollarMenu_NewSandwicheMcDonald’s Dollar Menu & More may be popular with customers but some of the chain’s operators are voicing unhappiness that these low-price options lower checks, complicate kitchen operations and slow service according to the latest (61st) McDonald’s Franchisee Survey conducted by Janney Montgomery Scott restaurant analyst Mark Kalinowski.

Says one operator: “Only thing we are advertising is Dollar Menu & More. We have 25 items on the Dollar Menu with breakfast and lunch. Why would a customer order anything else? Can get a beef, chicken, potato, soda, or coffee. It kills service time with orders of 2-3 sandwiches at a time. Cannot hit service times.”

Franchisees are traditionally grumpy toward franchisors but bad winter weather that has depressed sales may be exacerbating the discontent. Kalinowski has lowered his estimate of McDonald’s December U.S. same-store sales by 100 basis points to -0.3%. For January, where much of the U.S. has seen negative temperatures, Kalinowski sees negative sales growth, lowering his forecast for the month by 420 basis points to -2.2% based on franchisees’ reports.

The Dollar Menu & More, expanded in November with five beef and chicken burgers priced at $2 or less, is the focus of many franchisees’ complaints. The discount menu “is not helping sales, but rather hurting sales if anything. We are selling far more Dollar Menu & More sandwiches, and less and less large sandwiches,” says one operator.

The Dollar Menu & More coupled with frequent limited-time-offer specials have made an already large menu too large, others argue. “Our menu has gotten too big. We are trying to do too many things and our service and quality suffer. Look at In-N-Out Burger, Chick-fil-A, Five Guys [Kalinowski notes: all privately-held]. Their menus haven’t changed in years and they do not offer discounts on a regular basis,” says one.

“The menu items introduced during the last year—McWraps, Quarter Toppers, and Dollar Menu & More sandwiches—have killed our service and totally upset our kitchens,” says another franchisee.

“Slow kitchen turnaround times; more new products that do not sell,” echoes another operator.

To improve kitchen efficiency, McDonald’s is testing a “High Density Kitchen” solution, Kalinowski says. It adds more refrigerated and heated holding trays and pots to accommodate the expanded menu. But with sales slow, asking operators to invest in more new kitchen equipment is a tough—and unpopular—sell. One operator calls the High Density Kitchen “lipstick on a pig.”

Says another: “The High Density Kitchen will help organize all products, but it won’t fix our problem. The math doesn’t work as it relates to production time or service time.”

The real problem is discounting, according to some operators. “Won’t help. No matter what. There is no way to make all those $1 or $2 sandwiches fast. We could do it when it was just the McDouble and the McChicken. But now with 25 total items, no. If you add crew it doesn’t cover the cost to make all the Dollar Menu crap. Haven’t sold a wrap in so long. No one remembers how to make one.”

Ruby Tuesday Downscales, Downsizes

Ruby Tuesday announced a net loss of $34.7 million for its second fiscal quarter, ended Dec. 3, 2013, but President-CEO James J. Buettgen asked analysts for time and faith that the chain’s repositioning will work. But Wall Street battered the casual-dining chain’s stock yesterday because there was simply too much bad news in the numbers. Comp sales fell 7.8% at company restaurants and 5.3% at franchised locations due to a 6.3% decline in customers. The addition of lower-priced menu items that is key to the repositioning resulted in a 1.5% decrease in the average check.

A new "20 Under $10" menu is intended to improve value and variety perceptions.

A new “20 Under $10″ menu is intended to improve value and variety perceptions.

Buettgen insisted the numbers are encouraging, that customer traffic rose in October and November after a bad September. That wasn’t a good sign since Maryville, Tenn.-based Ruby Tuesday rolled out its first major menu overhaul in seven years in August. A four-item line of Pretzel Burgers and Flatbreads, starting below $10 were added in August, followed by Southern-Style Chicken Tenders in September, all signaling to longtime customers that foods they liked were back on the menu.

This week Ruby Tuesday took it a step further, creating a “20 Under $10” menu of affordable entrees—including a Smokehouse Burger—intended to improve consumers’ perceptions of the brand’s value and menu variety. That will help the chain achieve its No. 1 goal of boosting customer traffic, Buettgen said. Increasing same-store sales is a close No. 2.

The August introduction of Pretzel Burgers was the kickoff to the new menu strategy.

The August introduction of Pretzel Burgers was the kickoff to the new menu strategy.

Buettgen said the previous brand strategy masterminded by co-founder and former Chairman, President and CEO Sandy Beall (whom he politely did not name) failed because it “strayed too far from the equity and core of the brand.” That scheme sought to makeover Ruby Tuesday as an upscale “polished casual” dining concept targeted to affluent wine-drinking diners. The restaurants became too formal and too expensive, driving away its loyal beer-drinking customers

The current plan is to reclaim Ruby Tuesday’s positioning as an “affordable, casual and energetic” (a trio of adjectives used repeatedly) brand, Buettgen said. A lower-priced menu will make it more broadly appealing and relevant, Buettgen insisted, although he admitted Ruby Tuesday’s average check had declined (despite a 1.9% pricing uptick) as a result of the menu shifts more than anticipated.

The focus will be on rebuilding the bottom and middle thirds (price-wise) of the menu, which Buettgen said had been gutted in Beall’s ill-conceived emphasis on the highest-price menu items.

At the same time, management will move to reduce costs. About 70 corporate jobs—most from the Restaurant Support Center—have been eliminated. And 30 underperforming company-owned Ruby Tuesday restaurants will be shuttered.

Fried Fish on KFC Menu in France

KFC_france_FishKFC_Spain_Tower KFC is selling fried fish in France, continuing the blurring of the lines separating restaurant menu categories. The chain’s Boxmaster Fish wraps two fried-fish tenders, a fried hash-brown-potato patty, lettuce, tomato, cheese and peppered mayonnaise in a small tortilla.

With restaurant customer traffic stagnant globally, concepts are willing to look anywhere—even outside their traditional menu borders—for something that will spark consumer interest and sales. A recent example is Italian casual-dining chain Olive Garden’s decision to add the Italiano Burger (its first burger) to its lunch menu. Last summer, McDonald’s partnered with Barilla to put a line of pasta salads on its menu in Italy.

Outside the U.S., KFC menus tend to be a little wilder and focused on chicken sandwiches (like the Texan Grill it also has introduced in France) as well as on buckets of chicken. In Australia it has added an English Burger, a chicken sandwich topped with coleslaw, cheese and English mustard (do the British eat coleslaw?). In Spain, KFC has introduced the Tower Empire, a huge sandwich consisting of a freshly breaded chicken fillet topped with a hash-brown-potato cake, salsa, mustard, lettuce, crispy onions and pickles, all within a sesame-seed burger bun.

DDB Hires Burnett Exec for McDonald’s

DDB Chicago has scored a coup in its quiet rivalry with fellow McDonald’s ad agency Leo Burnett by hiring Tony Malcolm as executive creative director on its McDonald’s business in the U.S.

Malcolm has worked on the McDonald’s account during his eight years at Leo Burnett UK in London. There he wrote the “Just Passing By” series of warm, gently rhymed TV commercials for McDonald’s (at left) that frequently have been lauded here. The campaign received the first-ever Cannes Gold Lion for Creative Effectiveness.

The two agencies have sparred over pieces of the McDonald’s global ad business since 1981, when McDonald’s marketing czar Paul Schrage stunned the ad world by moving what was then the chain’s $75 million national account to Leo Burnett in Chicago from Needham, Harper & Steers (now DDB Chicago). DDB regained some of the business in 1990 and the two have competed for favored-agency status with McDonald’s here and around the world ever since. DDB Chicago is part of Omnicom Group; Leo Burnett is part of the Publicis network.

McDonald’s ad spending has grown considerably since 1981: the chain spent $957 million on measured-media advertising in 2012, according to Advertising Age.

“I have been an admirer of Tony’s work for a long time and I am thrilled he is joining DDB Chicago and focusing his talents on our McDonald’s business.  A superior creative product is what DDB is expected to deliver to our clients, and Tony brings superior creative skills and experience to the Agency,” DDB Chicago CEO Paul Gunning said in a release.

McDonald’s Commits to Sustainable Beef

McDonald’s Corp. has announced its commitment to begin purchasing “verified sustainable beef” during 2016 following a two-year ramp up during which it will “listen, learn, and collaborate with stakeholders from farm to the front counter to develop sustainable beef solutions.”

Beef cattleThe change can’t happen faster because McDonald’s sells about 1 billion pounds of beef annually in the U.S. Fiddling with its beef supply is a rather large undertaking. There’s also the matter of semantics “because there hasn’t been a universal definition of sustainable beef,” McDonald’s explains on a new page on its corporate website, initially reported by GreenBiz.com. Further, the beef supply chain is fragmented with ranchers, suppliers, slaughter houses and patty producers working independently but who need to work together to improve their product.

McDonald’s says it has worked with World Wildlife Fund, beef suppliers Cargill and JBS and others since 2011 to create a Global Roundtable for Sustainable Beef. That consortium now has “has drafted guiding principles and best practices for sustainable beef – a breakthrough for the beef industry, and for McDonald’s,” according to the company.

McDonald’s says its timetable is to support development of global principles and criteria in 2014; develop targets for purchasing verified sustainable beef; and finally to begin purchasing sustainable beef in 2016.

Why do it? Because “burgers remain some of our most iconic menu items,” McDonald’s says on its site. Additionally, “we want to do our part to improve environmental practices in the way beef is produced, support positive workplaces in the beef industry, and drive continuous improvement in animal health and welfare. Plus, we envision doing all of this while providing affordability and quality, along with economic viability for those who raise cattle and produce beef.”

Supporting sustainable farming is not only the right thing to do, it makes marketing sense as well, of course, McDonald’s faces increasing competition from chains such as Elevation Burger, B. Good, BurgerFi, The Counter, Farmer Boys, South St. Burger Co. and others that sell natural beef as well as a host of independent burger bars built around offering fresh, naturally raised beef.

According to researcher Technomic’s 2011 Center of the Plate Beef & Pork Consumer Trend Report, 23% of adults said they are willing to pay “slightly more” for beef (not just burgers) that is steroid-free. Another 11% would pay “significantly more” for the absence of steroids. Additionally, 21% say they’d pay slightly more for hormone-free, antibiotic-free and “natural” beef. That’s enough of an endorsement to draw McDonald’s attention.