McDonald's launches 'best burger' ahead of earnings report

When the company reports fourth-quarter results Monday morning, analysts expect U.S. same-store sales to grow just 4.4%, according to StreetAccount estimates. This is a clear lag compared to US same-store sales growth of 8.1% in the third quarter.

McDonald's and rival fast food chains will face pressure to increase traffic this year. Diners won't put up with the double-digit price hikes that drove last year's sales. Instead, chains must convince their customers that the food and drinks they offer are worth their prices — and repeat visits.

Enter McDonald's “Better Burger” initiative: small tweaks to the chain's burgers that create a noticeably more flavorful product.

“Our goal was to enhance the quality, flavor and overall dining experience of our core burgers, but we wanted to stay true to the tastes everyone loves,” Mason Smoot, McDonald's US chief restaurant officer, said at a media event on Monday.

McDonald's didn't change the beef steak itself, it changed the cooking and assembly processes. Grills give patties more room to breathe while they cook. For more flavour, only six dishes are cooked at a time, down from eight.

Onions are also added before cooking the patties so they can absorb their juices. Cooked patties are held hotter, so the overall burger is still warm when it reaches the customer. The cheese melts better, the buns are improved, and Big Macs receive more of their sauce.

“This is a step in the right direction to improve some of their core products, while also staying true to them,” said analyst Mark Kalinowski, CEO of Kalinowski Equity Research.

McDonald's started rolling out its better-tasting burger about a year ago, but it's finally rolling it out to all locations nationwide.

Some of the company's most important global markets, such as Australia and Canada, have already implemented Best Burger. Australia and Canada outperformed some of McDonald's other major international markets, which can be attributed at least in part to burger improvements, Kalinowski said.

At McDonald's Investor Day in December, CEO Chris Kempczinski said the “Best Burger” was on track to reach 70 markets by the end of 2023. By the time 2026 ends, the company expects nearly all of its markets to be served by the upgraded burger.

“Through initiatives like Best Burger, we're making small changes that add up to big differences that our customers really notice,” he told investors.

McDonald's is promoting the changes with a familiar friend – the Humblar, the McDonald's character used in its advertising dating back to the 1970s. In markets with a “Better Burger”, the chain aired a television commercial in which the mascot promoted the improved taste of the burger. McDonald's Special website Now an endorsement from Hamburglar is posted across the home page.

The changes affect all McDonald's burgers except the Quarter Pounder. The chain actually gave this menu staple its own makeover in 2018, when it switched from frozen beef to fresh beef for those patties. This change resulted in McDonald's gaining market share in the burger category for the first time in five years.

But Wall Street has mixed opinions about whether the “best burger” can fuel significant growth.

In a research note last month, Wells Fargo analyst Zachary Vadim called Best Burger an “upside driver” for McDonald's in 2024. However, it remains unclear how much upside the company expects to see from this initiative.

Kalinowski estimates the changes could raise overall 2024 sales by 0.5%.

“I think the net effect of this will be positive, but it's fairly subtle,” Kalinowski said.

Others are more skeptical.

“I doubt this leads to increased traffic,” BTIG analyst Peter Saleh said. “I think that's probably just part of the process of improving your game over time. A lot of these concepts have to improve the quality of their food over time.”

But there are some promising early signs that customers want to try the improved burger for themselves.

“While we had not received any announcements nationally until just this week, our contacts indicated that Better Burger had an average 10% increase in sales,” Loop Capital analyst Alton Stump wrote in a note to clients in May. Burger transactions so far.”

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