Soon, customers waiting in long lines and backed up drive-throughs to satisfy McNugget and Diet Coke cravings will be a thing of the past. In a departure from their business model of the last 60 years, McDonald’s is undergoing a series of unprecedented renovations to cater to the ever-changing preferences of the American population in the face of growing competition from other, more innovative fast food chains.
Since 2012, McDonald’s has lost over 500 million US transactions to its leading competitors in the fast-food field. The largest of these competitors is Wendy’s, which has utilized its slightly more upscale image and signature fresh burgers to draw in new millennial customers and steadily increase sales over the last five years. Both Sonic and Burger King have increased market share as they found that condensed menus focusing on customer favorites would be more profitable, a model that McDonald’s had successfully utilized themselves in their early years. Chick-fil-A, who has also grown to become a market leader, has long been using the simple menu model to keep loyal customers coming back.
Despite significant competition from other fast-food chains, the popularity growth of ‘fast-casual’ restaurants like Panera Bread, Chipotle, and Five Guys that offer the convenience and speed of fast-food with the atmosphere of a more upscale restaurant had also attracted a portion of McDonald’s’ customer base, growing 10 to 11 percent in sales every year from 2010-2015. More recently, however, it seems that the fast-casual trend and resulting profits have begun to plateau.
Fast-casual sales growth will slow to 6 or 7 percent this year.
According to a Bloomberg report, fast-casual sales growth will slow to 6 or 7 percent this year, as people start to question the quality of the food in relation to higher prices, choosing to either go to local restaurants or fast food chains. This opens a place in a previously saturated market for McDonald’s to exponentially improve their business model, a fact they seem to be taking advantage of.
Experience of the Future
By the end of this year, McDonald’s aims to upgrade 2,500 of their United States restaurants following its ‘Experience of the Future’ initiative, which includes self-order kiosks and table location technology to the tune of $150,000 to $750,000 of renovation per location. These new technological developments are arriving hand-in-hand with the implementation of made-to-order ‘fresh’ beef patties, that will replace the frozen patties prepared in bulk.
These pending changes have sparked a noticeable amount of conversation amongst franchisees, analysts, and consumers and has been heavily documented in the media as of late. Reactions have been varied, with many excited about the changes ahead while others are skeptical of the impact they will have.
One of the most contested, and perhaps most radical policy alterations is the attempt to switch from a frozen beef patty to fresh patties for the product that makes up about one fourth of the company’s US burger sales; the Quarter Pounder. While serving fresh beef burgers has been the norm for many competing fast-food restaurants, including Wendy’s and In-N-Out Burger, frozen beef has been a staple of McDonald’s for decades.
Steve Easterbrook, McDonald’s CEO since 2015, is promising fresh meat in an attempt to attract an increasingly health-conscious population to eat at the fast-food chain instead of other chains. Credit Suisse analysts have estimated that up to 15% of McDonald’s potential new customer base from the fresh meat could come directly from Wendy’s.
Other changes Easterbrook has implemented include cutting high fructose corn syrup from bread products and removing artificial preservatives in Chicken McNuggets. Despite the benefits of shifting towards healthier ingredients, there are risks to consider. Preparation time, for example, is of great concern since the new patties take almost a minute longer to prepare than the traditional frozen burgers.
Quality over Speed
For fast-food chains, speed is of the utmost importance, as the name would indicate. This factor is even more imperative at McDonald’s, as their average drive-through service times are significantly longer than its competitors. McDonald’s averages at 208.2 seconds per order compared to Wendy’s’ record-breaking 169.1 seconds. The extra minute required to cook the new Quarter Pounder will only prolong wait times, which may become intolerable to the 70% of customers who use the drive through as a means to get their food as soon as possible.
Though the product has been tested for almost 2 years in 400 Oklahoma and Texas restaurants to mostly positive reviews, the full effect will only be felt once the policy is fully implemented in all stores nationwide. If the majority of consumers value quality over speed, then the use of fresher ingredients may help McDonald’s compete with other fast-food chains that have surpassed them in sales over recent years. Other efforts to win back customers along with attracting the younger generations of Americans are the policies under ‘Experience of the Future’ (EOTF), which includes self-service kiosks, mobile ordering, table-locator technology, and curb-side pickup. EOTF focuses on customer satisfaction, as patrons will be able to select which method is most convenient for them. In addition, the multiple methods of ordering will work to decrease bottleneck effects in McDonald’s kitchens during peak hours.
With mobile ordering, customers can order on an app and have their meal delivered directly to their table without waiting in line with the new table-locator technology. Furthermore, curbside pickup will mean less congestion both inside the restaurants and in the drive-through lines. Modern Restaurant Management reported that these methods will most likely not deter clientele who are less tech-savvy as ‘every customer will enjoy the benefits to speed of service’ whether or not they themselves employ the methods.
The Future of Fast Food
Though the total impact of these new policies will not be clear before a sufficient period of time has passed, McDonald’s is prepared to take blows in the short-term in favor of positive long-term results, favoring an unprecedented holistic approach as opposed to a ‘piecemeal approach’.
So far, analysts have been optimistic regarding the effect the alterations will have for McDonald's’ business, especially with the positive impact self-ordering kiosks had at Panera Bread. A Cowen analyst estimated that with their continued implementation, sales could increase by 0.7 percentage points by 2018.
These renovations and changes to the menu as part of a rebranding and innovation initiative indicate a new era for McDonald’s, and for the fast-food industry as a whole, as increased competition in the industry along with changing consumer preferences has motivated companies to be healthier, fresher, and more technologically advanced.
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