For the last several years, fast food has gone “gourmet.” Specialty salads, premium wraps, and signature sandwiches and burgers have been added to menus in an attempt to better compete with so-called fast casual restaurants like Five Guys and Panera Bread. But McDonald’s is removing one high-profile “premium” item from the menu, possibly signaling that the trend toward higher-priced fast food is coming to a close.
On Thursday, McDonald’s announced that it would cut its one-third pound Angus burgers. One reason for dropping the item from the menu would seem to be the ever-rising price of beef, which hit record numbers this week, according to the U.S. Department of Agriculture. NBC News reported the price of beef is up 5% this year alone.
More importantly, as McDonald’s has felt compelled to refocus efforts on its Dollar Menu to boost flagging sales, it’s gotten more difficult to convince customers that a single Angus burger is worth $4 or $5.
Richard Adams, a McDonald’s consultant, told the Associated Press that the Dollar Menu is to blame for the Angus’s demise because $1 snacks and sandwiches are such attractive options for consumers. “When you can get four or five burgers off the Dollar Menu, nobody’s going to buy the Angus burger,” Adams said. “The Dollar Menu has become a real problem for these chains.”
Adams said essentially the same thing to the trade publication Nation’s Restaurant News last fall, when McDonald’s was launching a more robust selection of Dollar Menu items:
“Who would pay $4.79 for a sandwich when the two sandwiches on the Dollar Menu are perfectly good?” he said. “It’s just the math. The more you raise prices, the more you encourage people to buy off the Dollar Menu.”
And yet, because of troubling sales figures, McDonald’s has felt it’s necessary to stick with the crowd-pleasing Dollar Menu. In 2002, McDonald’s was in a similarly tough situation when it reported its first quarterly loss in almost 50 years. Back then, the restaurant’s strategy was to introduce more premium and nutritional foods to menus. In 2009, McDonald’s launched the Angus Burger, an item priced around $4 to $5. It was a stark departure from dollar (or less) hamburgers, but for a while it seemed nearly every chain had to offer a sandwich in the higher-priced “better burger” competition.
Burger King, Taco Bell, and others have also rolled out foods perceived as higher-quality in recent years. Meanwhile, so-called fast casual restaurants have been growing, and fast food wanted to take a bite out of chains like Five Guys, Panera Bread and Smashburger (all restaurants with higher-quality items but without table service). Thus entered the never-ending stream of “premium” this and Angus that.
Today, McDonald’s is going through its toughest financial stretch since 2002. Q1 sales were down 1% globally. While sales were down 1.2% in the U.S., they fell further overseas, especially in the Asia Pacific, Middle East and Africa segments – where it dropped 3.3%.
While McDonald’s is discontinuing the pricey Angus burger, and it has also dropped Chicken Selects and the Fruit & Walnut Salad from the menu, the company isn’t discarding the idea of offering new items. It recently added Chicken McWraps (which did contribute to 0.7% higher U.S. sales in April) as well as a version of an Egg McMuffin with egg whites and a whole grain muffin. But getting rid of Angus (which, by the way, is not necessarily better than other types of beef and merely refers to the breed of cattle) and refocusing on value may force the competition to rethink whether premium is the way to go.
While McDonald’s has reported four monthly global same-store sales declines since October, the rest of the fast food industry isn’t faring much better. According to the Wall Street Journal, the NPD Group – a firm that tracks the industry – is predicting a 1% sales decline across fast food this year.