Prepare for a parade of new indulgent burgers, flatbread sandwiches and wraps at the high end of the price spectrum. In the past week, top executives at both McDonald’s and Wendy’s have signaled their desire to develop new premium-price items to balance value-menu and mid-price foods added last year in the face of an economy that is recovering slowly.
When these two chains add more higher-price/higher-profit items, it will give every other QSR chain—and not just in the burger category–permission to follow suit. And they will.
Jack in the Box today introduced a new BLT Cheeseburger. Siblings Carl’s Jr. and Hardee’s already are readying a spicy Southwest Patty Melt with new TV spots featuring Sports Illustrated swimsuit model Kate Upton. It debuts at Hardee’s on Feb. 20; at Carl’s Jr. on Feb. 22.
During McDonald’s Jan. 24, 2012, quarterly earnings call, CEO Jim Skinner noted that while U.S. operations posted a hefty 7.1% increase in comparable sales for the fourth quarter, European operations did even better at +7.3%. McDonald’s “made gains in Europe through a focus on exciting menu news, particularly premium food events,” Skinner said. In France, he said, “a continued focus on two of our popular new premium offerings, McWraps and the 1955 Burger, helped increase sales.”
McDonald’s menu is becoming simultaneously both more local and more global. On the one hand, it is developing locally-tied items like the Holland Deluxe burger that went on its menu in The Netherlands this week. On the global side, it also introduced Chicken McBites, a product created in Australia, nationally here. Australia, meanwhile, is serving U.S.-style smoothies and frappes. Premium sandwiches and wraps that score in one area of the globe could be tried elsewhere—including here—as well.
McDonald’s President-COO Don Thompson said during that earnings call that the U.S. has lagged in bringing over successful premium-price products from Europe. That will change. “Premium sandwiches from Europe are still products that we have opportunities with in the U.S. And I know the [culinary] team is looking at that,” he said. During the July earnings call, Thompson told analysts, “I’m really looking forward to us having even more premium burgers.”
Similarly, during its Investor Day presentations this week, Wendy’s CEO Emil Brolick said that chain’s menu pricing is “a little out of kilter.” Even with the introduction of the premium-price Dave’s Hot ’n Juicy Cheeseburger line, the low-price end of the so-called price “barbell” dominated last year, he said. In 2012, Brolick said, the balance will “get back to where it needs to be.”
For Wendy’s that could mean bringing out the Black Label burgers or the Flatbread Grilled Chicken sandwiches it has tested. The chicken item not only adds a premium price ($4.49 in test), but it counters flatbread sandwich offerings at competitors such as Subway.
What premium-price items might McDonald’s import from Europe or Asia to the U.S.? These may translate the best:
● McWraps: Full-size, high-end tortilla wraps that have been sold in more than a dozen countries. In Europe, fillings have included beef, crispy or grilled chicken, chicken and bacon and even, in a few markets, shrimp. McDonald’s tested a similar item in the U.S. as Fresh Garden Wraps in November 2010.
● 1955 Burger: Named in honor of the year Ray Kroc opened his first restaurant, this burger started in Germany and moved around Europe. The 1955 is topped with grilled onions, bacon and smoky barbecue sauce and served on an upscale roll. Thompson during the July call said it “has become Germany’s best-performing premium sandwich.” McDonald’s even has a ready-made ad campaign (if they decide to use it): TV spots created for the Scandinavian rollout featuring a few seniors recalling their days working at that first McDonald’s in 1955.
● CBO: This premium sandwich—the name stands for Chicken Bacon Onion–has made the rounds of McDonald’s in Europe. On its second tour of duty in the UK last August, however, the name was quietly altered to BCO after the British government’s creation of a “Criminal Behaviour Order” created a CBO of a very different sort.
● Big Tasty/Big Tasty Bacon: Not fancy; just a burger with two slices of cheese, lettuce, tomato, onion and sauce. But it has proved to be very popular in Europe and might well be given a shot here.
● Prime Chicken/Chicken Legend/Chicken Mythic/Chicken Gourmet: These all are variations on the same upscale chicken sandwich that has been offered across Europe. All are breast-meat chicken on bakery-style rolls. Given commodity costs, McDonald’s can be expected to introduce at least one new chicken sandwich in the U.S. this year.
● The M: If McDonald’s really wants to go top-hat-and-tails, it can try the original pricey, sophisticated burger, the M (Le M in France; Der M in Germany; The M in Australia). It’s a big beef patty, with or without bacon, on an artisan roll.
Of course, McDonald’s also has a few premium items that it tested here last summer—such as the English Pub Burger and Zesty BBQ Cruncher. Then there are family dinner boxes that the chain might want to bring here, too. In short, the pipeline of possibilities is crowded.
McDonald’s new point-of-sale system, rolled out last year, invites the sort of menu expansion the chain has done. CFO Peter Bensen told analysts last summer that, “our old register system couldn’t have handled in any reasonable way the additional choice and variety that Jim [Skinner] is mentioning. And it helps facilitate the introduction more easily as some of these what we call premium food events or rotating events that items will come on the menu for six, eight, 12 weeks and then go away. We couldn’t have done that as easily or efficiently with our old register system.”