We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
McDonald's to Switch to Fresh Beef: Should Competitors Worry?
Read MoreHide Full Article
McDonald's Corp. (MCD - Free Report) is set to discard the use of frozen patties in favor of fresh beef in all its popular “Quarter Pounder” burgers across the majority of its U.S. restaurants by mid-2018.
Notably, the burger giant tested fresh never-frozen beef patties in Quarter Pounders burgers in over 400 restaurants in the Dallas-Fort Worth area as well as in Tulsa, OK region. It received immensely positive feedback from customers and employees.
Meanwhile, it is to be noted that the fresh-beef initiative is yet to be implemented for other McDonald's burgers like the Big Mac and McDouble.
Rationale Behind
This latest shift marks one of the biggest moves by the company to turn around its struggling U.S. business. Ever since the announcement of a turnaround plan by the company’s CEO, Steve Easterbrook, last May, a string of changes has been implemented on the restaurant chain as well as its menu in an effort to rejuvenate the brand.
The company has thus invigorated sales and profits by trimming costs, simplifying menus, offering value meals and rolling out all-day breakfast in the U.S.
McDonald’s is also going full steam on its digital initiatives and has begun testing mobile order-and-pay capabilities on its app in the U.S., reportedly. Moving ahead, the company plans to increase the number of restaurants that provide table service and self-ordering kiosks and is also testing food delivery.
Meanwhile, at a time when the U.S. restaurant industry is facing a slowdown, food companies are adapting to changing consumer preference, bringing more transparency in their operations and trying to appeal to more health-conscious eaters by altering their practices and food lineup.
Also, McDonald’s is not far behind. The company has discontinued the use of chicken raised with antibiotics, started using real butter, not margarine, in breakfast sandwiches, and removed high-fructose corn syrup from buns.
Additionally, to meet consumer preference for quality food, in Sep 2015, the company announced plans to shift completely to cage-free eggs for approximately 16,000 restaurants in the U.S. and Canada, over the next 10 years.
Though the usage of fresh beef is not a first for a fast-food chain, it is a noteworthy shift for McDonald’s in its strive to keep in pace with the industry that is migrating toward fresher ingredients. With this the company also aims to combat the overall slowdown in the U.S. restaurant space and rising competition in the patty space from fast-casual burger chains like The Habit Restaurants, Inc. , Shake Shack Inc. (SHAK - Free Report) and even fast-food rival The Wendy's Company (WEN - Free Report) , which has taken pride in its fresh meat, since a long time.
Bottom Line
McDonald’s shares have gained 12.1% over the past six months outpacing the 2.1% growth witnessed by the Zacks categorized Retail–Restaurants industry. Moreover, McDonald’s earnings surpassed the Zacks Consensus Estimate in each of the past 10 quarters, with the trailing four-quarter average earnings surprise coming in at 5.67%.
However, the company’s U.S. restaurants has now witnessed four straight years of traffic declines, resulting in 500 million lost transactions, since 2012.
The switch to fresh beef is thus another move by the fast-food chain to enhance its food and entice health-conscious customers and reverse recent foot-traffic declines. It would also aid McDonald’s in keeping with its efforts to transform itself to a contemporary burger company.
However, the transition to fresh beef is not going to be that smooth as it might slow down service due to major disruptions in its supply chain as well as changes in kitchen operations and equipment. Also, the company will need to ramp up its food safety as fresh, never-frozen meat poses danger of food-borne illness.
Though McDonald's is a somewhat late entrant in the fresh beef game, we believe that its large footprint in terms of locations lends it an advantage. Thus, the switch may perhaps prove to be challenging for its close competitors as the company might eat up their market share.
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
McDonald's to Switch to Fresh Beef: Should Competitors Worry?
McDonald's Corp. (MCD - Free Report) is set to discard the use of frozen patties in favor of fresh beef in all its popular “Quarter Pounder” burgers across the majority of its U.S. restaurants by mid-2018.
Notably, the burger giant tested fresh never-frozen beef patties in Quarter Pounders burgers in over 400 restaurants in the Dallas-Fort Worth area as well as in Tulsa, OK region. It received immensely positive feedback from customers and employees.
Meanwhile, it is to be noted that the fresh-beef initiative is yet to be implemented for other McDonald's burgers like the Big Mac and McDouble.
Rationale Behind
This latest shift marks one of the biggest moves by the company to turn around its struggling U.S. business. Ever since the announcement of a turnaround plan by the company’s CEO, Steve Easterbrook, last May, a string of changes has been implemented on the restaurant chain as well as its menu in an effort to rejuvenate the brand.
The company has thus invigorated sales and profits by trimming costs, simplifying menus, offering value meals and rolling out all-day breakfast in the U.S.
McDonald’s is also going full steam on its digital initiatives and has begun testing mobile order-and-pay capabilities on its app in the U.S., reportedly. Moving ahead, the company plans to increase the number of restaurants that provide table service and self-ordering kiosks and is also testing food delivery.
Meanwhile, at a time when the U.S. restaurant industry is facing a slowdown, food companies are adapting to changing consumer preference, bringing more transparency in their operations and trying to appeal to more health-conscious eaters by altering their practices and food lineup.
Also, McDonald’s is not far behind. The company has discontinued the use of chicken raised with antibiotics, started using real butter, not margarine, in breakfast sandwiches, and removed high-fructose corn syrup from buns.
Additionally, to meet consumer preference for quality food, in Sep 2015, the company announced plans to shift completely to cage-free eggs for approximately 16,000 restaurants in the U.S. and Canada, over the next 10 years.
Though the usage of fresh beef is not a first for a fast-food chain, it is a noteworthy shift for McDonald’s in its strive to keep in pace with the industry that is migrating toward fresher ingredients. With this the company also aims to combat the overall slowdown in the U.S. restaurant space and rising competition in the patty space from fast-casual burger chains like The Habit Restaurants, Inc. , Shake Shack Inc. (SHAK - Free Report) and even fast-food rival The Wendy's Company (WEN - Free Report) , which has taken pride in its fresh meat, since a long time.
Bottom Line
McDonald’s shares have gained 12.1% over the past six months outpacing the 2.1% growth witnessed by the Zacks categorized Retail–Restaurants industry. Moreover, McDonald’s earnings surpassed the Zacks Consensus Estimate in each of the past 10 quarters, with the trailing four-quarter average earnings surprise coming in at 5.67%.
However, the company’s U.S. restaurants has now witnessed four straight years of traffic declines, resulting in 500 million lost transactions, since 2012.
The switch to fresh beef is thus another move by the fast-food chain to enhance its food and entice health-conscious customers and reverse recent foot-traffic declines. It would also aid McDonald’s in keeping with its efforts to transform itself to a contemporary burger company.
However, the transition to fresh beef is not going to be that smooth as it might slow down service due to major disruptions in its supply chain as well as changes in kitchen operations and equipment. Also, the company will need to ramp up its food safety as fresh, never-frozen meat poses danger of food-borne illness.
Though McDonald's is a somewhat late entrant in the fresh beef game, we believe that its large footprint in terms of locations lends it an advantage. Thus, the switch may perhaps prove to be challenging for its close competitors as the company might eat up their market share.
McDonald's currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>