Will it work? Based on early tests in NY and other test markets, yes it will. The cost of the product will be $4 which is not unreasonable at all for a burger. McDonalds is also going the right direction. Going up the price ladder is easier than coming down.
Look at Starbucks (SBUX), they cannot shake the "expensive" label, no matter how hard they try because for so long, they were and were proud of it because to them it signaled "quality". Now the consumer has turned as is looking for value and McDonalds is printing profits as they come in the door.
The burger. I think people are really underestimating the potential here. Think about it. Most people like a good burger and $4 is still dramatically cheaper than the $7 -$9 you pay in most chain restaurants for one. Because of that, I am of the opinion that a large swath of current customers are going to give it a spin. Mom and dad can enjoy one while the little kids enjoy the Happy Meal they always want.
From a consumer perspective, this is the perfect thing for them to be doing now. They have expanded the coffee customer base, expanded the healthy offerings, and now they are expanding the base of people who want a burger but also want more than the current cheeseburger fare. Unlike other past unsuccessful roll-outs like when they ventured into pizza, this is perfectly in keeping with what people go to McDonalds for in the first place.
This is going to be big folks.....
Todd Sullivan
valueplays.blogspot.com
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Source: Todd Sullivan's - ValuePlays
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User Comments:
1. DaveinHackensack says on Jul 02, 2009 at 8:54 PM:
Our local McDonald's restaurants have had the third-pounders for a while. They're not bad -- copious amounts of mayo give the illusion of moister, not as overcooked burger -- but we have much better options locally, e.g., Five Guys.
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2. Mrubsam says on Jul 03, 2009 at 12:42 AM:
I don't think this is a good idea for Mickey D's, but I have yet to try this burger.
In my opinion Mickey's is trying to do too much at this point. You can't outflank Starbucks, chains like Five Guys, healthier options like Subway, and your traditional fast food competition all at once. It gets confusing for the customer.
I see Mickey's strong points as the Dollar Menu and a cheap place to kill time with the young kids (Playplace & Happy Meal). I'm not going to start going there looking for a decent burger.
Invariably companies stray from their most successful strategies to pursue every customer. Almost invariably, they fail. I recently sold out of this stock because I think they are approaching peak success.
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3. AlexG says on Jul 03, 2009 at 2:51 AM:
Its hardly new, its been around for a while (2 years or so). I was a bit surprised to find out that it hasn't been rolled out nationally (international?).
So Cal: In-N-Out ...best burgers
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4. Expectingrain says on Jul 03, 2009 at 6:11 AM:
Mrubsam hit the nail on the head. This company is a great company to own, but must be bought when beaten down. They are firing on all cylinders right now and are probably near or at a peak. Too much money flowed into MCD because it was a recession play. I'm waiting till growth comes back in vogue and MCD is thrown to the curb. It might take a few years but I'm patient.
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5. DaveinHackensack says on Jul 03, 2009 at 1:59 PM:
The new espresso is pretty good at McDonald's, incidentally, about as good as the ones at Starbucks (which doesn't have the best espresso anyway). Locally, Starbucks is a little cheaper though for what I normally get. Four shots of espresso over ice run about $2.73 here with tax, and which is about $2.45 after my Starbucks gold card discount. Three shots of espresso over ice at McDonald's here are $3.21 with tax, though the shots at McDonald's are bigger, so three shots is more espresso than four at Starbucks.
If I'm going to hang out and drink coffee, I'll go to Starbucks, but if I'm getting one to go, I'll go to McDonald's sometimes now, particularly late at night.
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6. Stockdocx99 says on Jul 04, 2009 at 7:24 AM:
Eat the new burger or just read "Grime and Bunishment" instead.
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7. Traderashish says on Jul 04, 2009 at 9:48 AM:
I agree - So Cal: In-N-Out ...best burgers and cheaper too
Main reason people even go to MCD is because of small kids...
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8. Stockdocx99 says on Jul 04, 2009 at 10:07 AM:
In-N-Out for Sex and Food... what could be an easier sell?
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