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McDonald's (MCD) Expands Program of Switching to Fresh Beef

MCD WEN SHAK HABT

Trades from $3

As per recent reports, McDonald's Corp. (MCD - Free Report) has expanded its program that discards frozen patties in favor of fresh beef.

The burger giant is thus testing fresh never-frozen beef patties in Quarter Pounders and Bacon Clubhouse burgers in over 75 restaurants in the Tulsa, OK region. Notably, McDonald’s recently conducted such tests in the Dallas-Fort Worth area, as well.

Rationale Behind & Efforts Undertaken

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 and 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 with plans in place to rollout its mobile order-and-pay technology.

We note that the company is trying out this particular innovation to its menu in order to the combat the overall slowdown in the U.S. restaurant space as well as rising competition in the patty space from fast-casual burger chains such as The Habit Restaurants, Inc. (HABT - Free Report) , Shake Shack Inc. (SHAK - Free Report) and even fast-food rival The Wendy's Company (WEN - Free Report) , which has for long taken pride in its fresh meat.

In fact, McDonald’s made added moves lately to enhance its food and entice health-conscious customers. These include discontinuing the use of chicken raised with antibiotics, using real butter, not margarine, in breakfast sandwiches, and the removal of 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.

Bottom Line

We note that the fresh beef test is being carried out in just a small fraction of McDonald’s total U.S. locations. Should the test go nationwide, it is sure to result in major disruptions to McDonald's supply chain as well as changes to 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.

Nonetheless, this new initiative should aid McDonald’s in keeping with its efforts to transform itself to a contemporary burger company and help in retaining and even escalating its market share.

McDonald's currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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