McDonald’s Makes a Preemptive First Strike on a Junk Food Image

At a dinner McDonald’s (MCD) managed for correspondents and bloggers, waiters served up cuisine cooked by celebrity chefs using elements from the chain’s bill of fare.
A Kung Pao chicken appetizer was made with Chicken McNuggets drenched in sweet-and-sour sauce and garnished with parsley. Slow-cooked beef was served with gnocchi designed out of McDonald’s french fries and a fruit condiment from its smoothie mixture. For dessert, its biscuit mix was used to build a pumpkin spice “biznut,” a biscuit-doughnut hybrid.
The function, scheduled in New York City’s Tribeca neighborhood, was referred to “A transforming dining experience of ‘fast food’ to ‘good food served fast.’ ” participants tweeted out images and the event was written up on a variety of websites.
The recipes aren’t meant for McDonald’s restaurants. Instead, the occasion is part of a campaign by McDonald’s to shake its character for serving inexpensive, bad cooking. At a time when Americans are paying closer consideration to what they devour, the business is trying to sway community sentiment by first communicating to the reporters, bloggers and other so-called “influencers” who write and communicate about McDonald’s.

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Dollar Cravings Menu

Taco Bell Brings Out the Beefy Fritos Burrito on its Dollar Cravings Menu

Taco Bell introduced eleven items on its dollar cravings menu. Some items are actually going up in price because they had been offered at prices less than a dollar.

One new items to be excited about is the “Beefy Fritos Burrito”.

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Cronut from Jack in the Box

Jack in the Box Adds the Trendy Cronut to Breakfast Offerings

Jack in the Box has unveiled its own version of the croissant-donut pairing. The restaurant is calling these cronuts another term – croissant donuts. These sweet treats are sprinkled with cinnamon sugar and come individually or in bag of three.

These croissant donuts will only be available for a limited time. Jack in the Box also introduced two new breakfast burritos — the “Meat Lovers” and the “Grande Sausage.”

As typical of Jack’s breakfast offerings, you can purchase these any time they are open.


Del Taco Santa Paula

Del Taco in Santa Paula Can Be Very Expensive

Michael Cole’s bill for one CrunchTada Pizza and two beef tacos came to $4,050. It was either a mistake, or one of the costliest meals in the history of Santa Paula’s Del Taco. As Cole and several other customers who paid small fortunes for burritos, tacos and sodas found out, it was the former — an expensive technical error. It’s not clear what caused the glitch, but it affected ATM and credit card transactions at only the Santa Paula Del Taco location, said Del Taco spokesman Brian Devenny. “The processor is aware of the situation and has contacted banks involved,” Devenny said. “They are working together to get these charges reversed as quickly as possible.”

Roughly 150 customers were affected, on Monday and Tuesday, he said. “There’s nothing that guests need to do,” Devenny said late Friday afternoon, adding that refunds had already started. Cole noticed the problem Friday morning when he tried to pull $20 from an ATM and got denied. He called his bank, which told him of the Del Taco charge. “I don’t even think I’ve spent that much in the last five years,” Cole said.

Tuesday night is when Dino DeLaO’s wife stopped by, paying $10.20 for her food. At least she thought she had paid $10.20. She was actually charged $10,200, said DeLaO, whose banker alerted him of the odd transaction and withdrawal.

The mischarge caused his mortgage check to bounce and could affect several other bills, DeLaO said. A frustrated DeLaO questioned whether overdraft or other fees would also be covered.

“When stuff like this happens, they don’t know what’s going on,” he said, holding a piece of paper with the phone number of the financial processor he’d been told to call. Devenny said all charges related to the food purchases will be refunded.

At least one customer has already been paid back. Austin Dillon, of Oxnard, came in a couple days ago and bought $4.26 worth of food, which turned into $4,260. He noticed Friday morning as he did his weekly banking.

Dillon said it wasn’t difficult getting the money credited. “It’s kind of obvious because it was Del Taco,” he said.

Although some customers were upset and frustrated Friday — at least two said they had no access to more money — others took the phone numbers and quietly left. Several made jokes. “I don’t want a $2,200 Coke,” one customer said.

Cole, whose boss let him come in to handle the situation, headed back to work after being told to return later when the Del Taco manager was in.

He seemed confident the matter would be handled, assumed it was a computer glitch. The food’s good and the service great, Cole said of his regular Del Taco. “It’s not going to deter me from coming back,” he said. “I’ll probably use cash from now on.”



Burger King

Burger King Copying the Big Mac with Chicken

Burger King is introducing the Chicken Big King, a further evolution of the Big King burger it unveiled last November and then increased in size in February. The new sandwich’s build remains the same as with the previous two iterations—with lettuce, pickles, onions, American cheese and King sauce on a three-layer, toasted sesame-seed bun—just with two of the crispy chicken patties it uses for the Rodeo Chicken Sandwich on its King Deals Value Menu. The only build change is that three bun faces get a schmear of sauce, rather than two as with burgers, to keep the chicken moist.

The original and bulked-up Big King burgers sold for a recommended price of $3.69. The Chicken Big King comes in under that at $3.59. The sandwich will be included in Burger King’s ongoing “2 for $5” promotion. “That has been very good for us,” Alex Macedo, Burger King North America president, told in an interview. “It has been a way for us to bring product news and product innovation to consumers at good value.”

TV advertising support launches on Saturday when the sandwich begins rolling out to Burger King stores. Macedo said a multi-faceted digital-media push for the Chicken Big King will debut in a few weeks. And before the gripes that the Chicken Big King is like McDonald’s Big Mac or a clone of KFC/Canada’s double-decker Big Boss sandwich, understand that Macedo and Burger King don’t care about “copycat” calls. Why not use a good idea? “There’s no point in not offering your guests something they like and appreciate,” he said. “With the Big King we took a familiar platform and we serve it with the fire-grilled taste everyone loves about Burger King. Sales have been strong, which tells us it was a good thing to offer to our guests.

“And with the Chicken Big King, we’re taking that platform and innovating on it. [The double-decker sandwich] is a widely known platform that has been relatively dormant over the past few years,” Macedo said. “We brought in the Big King and that created a lot of excitement. Now we’re bringing a second round with the Chicken Big King.” McDonald’s has tried a Chicken Big Mac overseas but not in the U.S.

Using the Rodeo Chicken patty is consistent with Burger King’s strategic shift last year to introducing fewer new products and to simplifying kitchen operations. “This year, basically, we have introduced only four new products and we have done that with just one new SKU, the spicy chicken patty. A year ago we were introducing a bunch of [new] products with a lot of new SKUs and it was very confusing for our restaurant teams. It was difficult for our franchisees to manage profitability. We took a few steps back and tried to be more creative with on-hand ingredients and that’s what we’re doing here.” That, he says, has improved store operations by adding efficiency and cutting waste. “Despite the weather challenges that everyone has had, we’re seeing increased profitability for franchisees, which is our ultimate goal.”

The Chicken Big King was tested in 100 Burger Kings in Indiana. “What the consumer told us was, ‘Wow. So obvious. How come it’s never been done before?’ Just with point-of-purchase marketing, consumers understood exactly what they were getting [with the Chicken Big King] because they know that build,” said Macedo. “If we have the same success [nationally] with the Chicken Big King that we had in test, we’re in a really good place.” KFC Canada added a double-story Big Boss this year, but Burger King doesn’t care who else has done anything similar. The idea sells. To be fair, the idea has been done before, if not in the U.S. McDonald’s has offered a chicken version of its Big Mac as a limited-time special in several markets—especially in the Middle East and recently in Dubai—over the past several years. And KFC has the double-decker Big Boss chicken sandwich in Canada. The triple-bun burger dates to Bob Wian and Big Boy restaurants in 1937. McDonald’s franchisee Jim Deligatti created the Big Mac in 1967. The Big Mac was untouched until 2009, when McDonald’s Canada operation deconstructed it for the Mac Snack Wrap. That innovation came to the U.S. the following year.

In 2012, McDonald’s Germany created a Bigger Big Mac, 45% larger than standard. France last year copied that with Le Grand Mac. McDonald’s Japan introduced the four-patty Mega Mac last year and the chain’s Australian operation came up with a single-story Angus Mac. McDonald’s has not messed with the Big Mac much in the U.S. When the chain used that Big Mac’s “special sauce” on this year’s Bacon Clubhouse burger, that alone raised some eyebrows among aficionados.

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Sonic Drive In

Sonic Sees an Opportunity to Compete with McDonald’s

When you speak to Cliff Hudson, Sonic Corp.’s chief executive and president, about his plans to grow the chain, he would tell you to see Sonic’s opportunity, you’d first need to look at McDonald’s Corp.

With McDonald’s having “gotten its act together” before the recession, including such initiatives as revamping its stores, changing the way it prepares food and expanding its McCafes, Hudson is quick to admit that the fast food giant had taken market share away from its competitors between 2009 and 2011 in an industry that faces increased competition from the likes of Chipotle and other fast casual restaurants.

However, McDonald’s initiatives have run out of steam, Hudson said, and the company has yet to produce fresh ideas. McDonald’s recently reported its U.S. same-store sales have declined for a fourth straight month. McDonald’s, without elaborating, said it’s “focused on serving (its) 70 million customers everyday around the world.”

“There’s a bit of opportunity for all of us,” Hudson said in an interview. The quick-service restaurant industry “is very squeezed. It’s been a share-stealing game.”

Investors appear to appreciate Sonic’s opportunity. Its shares surged 11% to $23.25 on Tuesday to their highest level in six years after it reported a better-than-expected fiscal second-quarter profit. Its comparable sales also climbed 1.4%, despite wintry weather and store closings that hurt sales by another 2 to 3 percentage points.

“We continue to recommend Sonic shares as we believe management has successfully created greater visibility and clarity surrounding its growth strategy” and plans to grow per-share profit by up to 20% annually over the long term, said William Blair analyst Sharon Zackfia.

Sonic’s comparable sales, after declining in 2009 and 2010, turned positive in each of the past three years. The company forecast those sales to rise in the low single digits this year.

As the recession hurt business, Sonic began to heavily consider customer feedback, including using mystery shoppers to study why one restaurant was outperforming another. It also began to improve its food quality, such as using real ice cream, instead of reduced fat soft serve, in its shakes and switched to Ciabatta instead of a wheat bun for its chicken sandwich. To combat cost inflation, it designed “layered pricing” such as more ice cream cone sizes or a six-inch hot dog besides its foot-long one that gave customers more choices but allowed it to raise prices.

The company also hired a chef from chocolate maker Godiva to design its menus and offered choices such as 25 summer shake flavors. It switched from a regional media buyer to a national buyer to lower its advertising costs and reintroduced its popular “Two Guys” campaign. To court the health-conscious, it pitches choices that include iced tea and slushies made from real fruit. When business was tough during the recession, it worked with franchisees on staffing and pricing so they didn’t have to cut full-time staff, Hudson said, adding franchisees operate about 90% of its stores.

“We used recession to begin retooling,” Hudson said, adding customer service and perception have improved significantly.

To further spur growth, Sonic’s big initiative this year, besides accelerating store openings, is installing personalized service interactive screens and digital menu boards, which it calls POPS, at each drive-in check out that allows it to engage shoppers who spend an average of nine to 11 minutes at the drive-through, promote items and suggest choices depending on the time a customer shows up and what they order. For stores that have the service, it’s seen increased sales, traffic and a higher customer-service score. The improved sales have encouraged the company’s suppliers to volunteer to foot some of the installation costs for product promotion opportunities, Hudson said.

Same-store sales “should continue to outpace the industry,” said Barclays analyst Jeffrey Bernstein in a report.



In-N-Out Burger is Coming to San Antonio Soon

Burger fans in San Antonio may prefer sliced jalapeños with their Whataburger or a thick milkshake on the side of their steakburger from Steak ‘n Shake.

But soon they can try the “not-so-secret menu” at In-N-Out Burger, which features a famous “animal style” burger with extra spread, grilled onions and a mustard-fried meat patty. After months of speculation, the popular fast-food chain confirmed it selected a site on the far West Side for its first location in San Antonio. “We really like the site and hope to be able to get it under construction in the not-too-distant future,” Carl Van Fleet, vice president of planning and development for In-N-Out, said in an email.

Architectural records filed with the state Wednesday show In-N-Out plans to spend $1.5 million on a freestanding restaurant with a drive-thru at 10918 Culebra Road near Loop 1604. Construction should start in May and finish about November, according to the filing with the Texas Department of Licensing & Regulations. Van Fleet, however, said he couldn’t release an opening date.

“It is still a bit early in the process … as we have yet to obtain building permits,” he added. “We should know more about our timing in a month or so.” Since its Texas debut three years ago, In-N-Out has quickly expanded across the state. Its website currently lists 21 restaurants here, with a third Austin-area location opening soon in Cedar Park.

In January, the San Antonio Express-News reported a shell corporation tied to In-N-Out purchased a plot of land at Loop 410 and McCullough Avenue. And Windcrest officials in February confirmed that the Irvine, Calif.-based company would open shop at a site off Interstate 35 and Walzem Road.

Van Fleet did not answer questions about those locations, but previously he’d hinted that In-N-Out is pursuing “a few projects” in San Antonio. “It is still a bit premature to comment on the timing of any of those projects,” he said. When In-N-Out opens on Culebra Road, it will join a long list of fast-food chains populating that highly-trafficked intersection.

Del Taco, also from California, opened its first San Antonio restaurant there in September, and Steak ‘n Shake welcomed long lines of customers in July when it opened for business nearby. Bush’s Chicken, Popeyes Louisiana Kitchen and Raising Cane’s Chicken Fingers also took over space in the area recently.

“The Culebra and 1604 area is really what I would call a hotbed of fast-food-type restaurants,” said Chuck Siegel, who specializes in retail as president of Rohde, Ottmers & Siegel Realty Services.

He highlighted the “tremendous” commercial and residential growth on the far West Side and expected to see long lines of cars waiting to sample In-N-Out on opening day.

“It’s just a hub there for the West Side of town,” Siegel said, “and there couldn’t be a better site, in my opinion, for (In-N-Out’s) first restaurant. We’ve had a lot of people who moved here from the West and California and know who they are.”

Kim Gatley, senior vice president and director of research for REOC San Antonio, also said residential growth on the West Side probably factored into In-N-Out’s decision to open near so many other fast-food chains.

“Another thing, just perspective-wise, that may play into it is the tremendous amount of employment that we see in Westover Hills,” Gatley said. “Many of those large campuses have their own internal cafeteria or food service.” Nevertheless, she added, fast-food restaurants could benefit while sit-down restaurants would suffer. For several months, the area’s real estate and commercial development community has buzzed with rumors of In-N-Out’s plans for San Antonio. Siegel confirmed he heard the chain would open a cluster of restaurants here, as it has done in other Texas cities. “They’ve looked at a lot of locations, and they’re certainly not coming to town just building one,” he said.



Is McDonald’s Actually Moving Towards Becoming a Coffee Shop?

McDonald’s is slowly moving toward becoming a coffee shop. This might sound ludicrous to those who grew up while eating burgers and fries at McDonald’s, but any company that wants to succeed will implement initiatives that match industry trends or find itself dying a slow and painful death.

This doesn’t mean McDonald’s will stop serving burgers and fries. That has yet to be established, and even if it did do this, it would likely occur many years down the road. However, one thing is certain: because of the rise of the health-conscious consumer, burgers and fries will not be the company’s growth catalyst.

McDonald’s recently launched a test menu item in the San Diego area. It’s not surprising that this was a breakfast menu item. Coffee and breakfast go hand-in-hand. If McDonald’s can add appealing items to its breakfast menu — items that would go well with coffee at its McCafe — then McDonald’s could find a new avenue for growth domestically.

If you get your coffee from McDonald’s, then you might be inclined to try Petite Breakfast Pastries as a complement to your drink — assuming that the restaurant makes them available systemwide in the future. If you order Petite Breakfast Pastries with coffee, then the Petite Breakfast Pastries will only cost you $1.29. If you order Petite Breakfast Pastries without coffee, they will cost you $1.99.

The Petite Breakfast Pastries come in Raspberry and Cinnamon Cream Cheese flavors. According to the Los Angeles Times, the early reviews on Twitter have been strong. This is a positive sign. While it’s only a small step (potentially) to add a high-demand item to the menu, it’s a step in the right direction. Considering recent comps performance for McDonald’s, something needs to be done.

In February, McDonald’s domestic comps slipped 1.4%, which was primarily blamed on the weather. In Europe, comps declined 0.6%, which was primarily blamed on Germany. In APMEA, comps slid 2.6%, with Japan taking most of the blame. While excuses are sometimes justifiable, a restaurant chain that sells high-demand items can stand up to inclement weather.

McDonald’s might be the largest restaurant in the world, but it still needs growth catalysts. On several occasions, McDonald’s has hinted that it wants to expand its reach in the breakfast market. It’s the current leader for breakfast, but it must continue to innovate in order to maintain this lead.

An interesting aspect of this story is that the primary competitors for McDonald’s won’t be Wendy’s and Burger King, they will be Dunkin’ Brands and Starbucks.

Dunkin’ Donuts now offers the Eggs Benedict Breakfast Sandwich, the Turkey Breakfast Sandwich, and a Whole Wheat Bagel. The Turkey Breakfast Sandwich is served on multigrain flatbread, but it is also available as a wrap. The Whole Wheat Bagel can be ordered with reduced fat cream cheese spreads.

It’s clear that Dunkin’ Donuts is targeting the health-conscious consumer, which is a positive. Actually, Dunkin’ Brands (Dunkin’ Donuts plus Baskin-Robbins) seems to be doing a lot right. It has delivered 45 consecutive quarters of comps growth in a challenging consumer environment.

Going forward, Dunkin’ Brands aims to drive comps and profitability by offering high-margin and differentiated products. For fiscal-year 2014, Dunkin’ Brands expects comps growth of 3.4%.

Meanwhile, Starbucks CEO Howard Schultz once stated that he didn’t lose any sleep over Dunkin’ Donuts being a threat to his business. On one hand this makes sense, primarily because Starbucks restaurants are often situated in higher-income areas and they attract a more affluent consumer. Dunkin’ Donuts aims for the middle-income consumer. On the other hand, there’s no question that overlaps exist, and some consumers might choose one brand over the other because of its menu offerings. McDonald’s also plays a role here.

Starbucks’ breakfast menu now includes: Bacon & Gouda Breakfast Sandwich, Classic Whole-Grain Oatmeal, Egg & Cheddar Breakfast Sandwich, Ham & Cheddar Breakfast Sandwich, Hearty Blueberry Whole-Grain Oatmeal, Reduced Fat Turkey-Bacon Breakfast Sandwich, Sausage & Cheddar Breakfast Cheddar Sandwich, Slow-Roasted Ham & Swiss Breakfast Sandwich, Spinach & Feta Breakfast Wrap, and Vegetable & Fontiago Breakfast Sandwich.

The point of listing all of those items is to show that Starbucks is also making a strong push for the breakfast market, so today’s health-conscious consumer has several options. As far as overall comps performance goes, Starbucks delivered 5% growth, primarily because of a 4% increase in traffic. Therefore, demand is still high for Starbucks.

It’s very possible that McDonald’s key competitors down the road will be Dunkin’ Donuts and Starbucks, not Wendy’s and Burger King. If this ends up coming to fruition, then McDonald’s must continue to innovate and test new breakfast menu items in order to maximize its market share potential. The Petite Breakfast Pastries are a step in the right direction.

At the moment, McDonald’s is a mature company struggling to find growth avenues. Investors shouldn’t expect to see significant stock appreciation in the near future, but strong cash flow generation allows for a generous 3.4% dividend yield and resiliency to difficult economic times. Please do your own research prior to making any investment decisions.


The First Chipotle

How Chipotle Challenged Fast Food to Become the Top of the Chains

In 1991, Steve Ells couldn’t afford to eat regularly at the legendary Stars restaurant where he was working as a $12-an-hour line cook. Instead, he was more frequently found gorging himself on giant burritos at a taquería in San Francisco’s Mission District called Zona Rosa. It was there, over a carnitas burrito, that Ells had the insight that would change his life–and American fast food–forever.

Ells looked up from his table at the long line of people waiting to order their food and the small group of workers behind the counter preparing the rice, beans, pork, and guacamole. “I remember jotting down on a napkin at that moment how many people were going through the line, how quickly,” he told the Rocky Mountain News in 2006, “and I thought, they probably have this much in sales, the food costs might be X–a good little business.”

As a trained chef and graduate of the Culinary Institute of America, Ells was intrigued by something else about Zona Rosa. Its food was produced fast and inexpensively, but the quality and the flavor weren’t compromised in the way that typical fast food fare is. He returned to his hometown of Boulder, Colorado, and there in 1993 he opened the first in a chain of Chipotle Mexican Grills.

There are now over 1,400 Chipotle locations in 43 states, and the chain reportedly made a 25% profit margin on $2 billion in sales in 2011.

Chipotle began a trend in restaurants that the industry has dubbed “fast casual,” which offers a more upscale dining environment and food quality, along with higher prices, but in the familiar, convenient limited service format of fast food. “When I started Chipotle, I didn’t know the fast-food rules,” Ells explained years later. “People told us the food was too expensive and the menu was too limited. Neither turned out to be true.”

By either ignoring or directly challenging all the dominant trends in its industry, Chipotle quickly became a great brand. Now Chipotle has become the trend-setter in the category, and trade publications feature headlines such as, “Who Will Be the Chipotle of Pizza?” Wendy’s and Taco Bell are just two of the most prominent fast food players investing in new store designs that look shockingly similar to that of Chipotle. The Wall Street Journal dubbed Ells the “Fast Food Revolutionary,” and Esquire crowned him America’s most admired CEO.

The common wisdom in the fast food industry has always been that you grind out your profits through reduced prices, expanded menus, and raised operational efficiencies. At the time of Chipotle’s founding, Taco Bell–the putative head-on competitor to Chipotle in the Mexican food category–was turning heads in the industry with its enormously successful penny-pinching “59–79–99” value menu.

But Ells grew Chipotle by going in the opposite direction. He determined that Chipotle could introduce a higher quality of Mexican fare to a broader audience by defining a different value equation for fast food. All the food would be freshly prepared. The ingredients would be top quality. And the restaurants themselves would be beautiful, all wood and metal, offering a dining experience several notches above fast-food Formica counters and fluorescent lighting. Efficiencies in the fast food industry depend largely upon limiting spoilage and minimizing labor costs by cooking frozen meat patties and french fries, but Chipotle restaurants don’t even have freezers. All of Chipotle’s ingredients are delivered fresh. After the company bought hundreds of labor-saving onion-slicing machines, Ells ordered that onions go back to being hand-cut because he felt that made them taste better. Machine-cutting had left the onions a little dried out.

Another standard fast-food practice is to pay employees as little as possible, while Chipotle’s practice is to pay more, but to dismiss employees who lack energy or are otherwise mediocre performers (One industry observer marveled, “Who ever heard of a fast-food restaurant firing someone for being mediocre?”).

Despite its higher wages, however, Chipotle still manages to spend more on ingredients than it does on payroll, the exact reverse of the fast food formula for success. In the years when other restaurants of all kinds were cutting prices in a race to bottom, Chipotle either held fast or raised prices. For instance, when Ells was unhappy with the taste of his shredded pork burrito, he went out and sourced a higher grade of pork and raised the burrito’s price by a dollar, and sales of the product reportedly doubled to a full 8% of company revenue.

In the course of Chipotle’s rise from one store to over 1,400, there have been countless temptations for the company to stray from its distinct course and lapse into following trends. Much of Chipotle’s early growth had been financed by a large investment from McDonald’s Corporation, and executives there failed in their efforts to get Chipotle to offer low-risk high-profit menu items such as cookies and coffee. “They probably did give me grief,” Ells modestly explained to Time magazine in 2012. “We wouldn’t do [cookies and coffee] better than anyone else. And I don’t want anything to be part of Chipotle that wouldn’t be the very best.”

McDonald’s sold its stake in Chipotle in 2006, and since then, Chipotle has moved farther and farther away from the typical fast food way of doing business. Ells’s latest obsession is the issue of sustainability. Chipotle is now the largest buyer of higher-priced pork, beef, and chicken from animals that have been naturally fed and humanely raised outside of the factory-farming system, which provides inexpensive commodity meats to the rest of the food industry. Produce served at Chipotle is also locally raised if possible (lettuce served in January on the East Coast still comes from California). What Chipotle has learned is that customers notice the difference in flavor from natural meats and fresh vegetables grown “with integrity,” as the chain’s tagline states–and they’re willing to pay extra for it.