If at first you don’t succeed, try, try again – this time with “fresh” instead of frozen beef patties. McDonald’s is now trialing Archburgers at a handful of restaurants in Oklahoma and Texas. According to a report published by Business Insider on January 3: “The burger seems to be a revamped version of the Arch Deluxe, a McDonald’s flop from the late 1990s.”
The ill-fated, premium-priced and Arch Deluxe was pitched as a “burger with grown up taste” two decades ago, featuring a quarter pound of beef on a split-top potato flour sesame seed bun, topped with a circular piece of peppered bacon, lettuce, tomato cheese, onions, ketchup and a special mustard-mayonnaise Arch Sauce. It did not appeal to enough consumers and was discontinued after a major advertising promotion campaign failed to lift sales.
This time around, currently on trial at a reasonable-priced $2.19 compared to $3.99 for a Big Mac, the world’s leading burger chain hopes that the appeal will be greater – especially among consumers impressed with its “fresh, never frozen” patty, which will weigh in a just under three ounces. Served on a potato bun with Arch Sauce, there are also Bacon Archburger and Archburger L&T options.
Meanwhile, the Oak Brook, Illinois-headquartered fast food giant aims to roll out fresh beef Quarter Pounders at most of its 14,000 outlets across the United States this summer. A number of financial analysts, already impressed that the company’s stock rose by over 41% in value during 2017, believe that the fresh beef debut could boost sales significantly in the second half of 2018.
The thinking is that non-frozen beef will broadly appeal to a new generation of consumers and better compete against products offered by rivals such as Wendy’s, which plays up “fresh, never frozen” burgers in its advertising campaigns.
However, franchise consultant Richard Adams believes that menuing Quarter Pounders and Archburgers made from non-frozen beef on a system-wide basis may not only be easier said than done, but could be unrealistic given that many operators are concerned about rising component and labor costs.
“Everyone should keep in mind that McDonald’s is being run by people with little or no real restaurant experience,” he wrote in an e-mail to CBS MoneyWatch describing the company’s executive leadership, as previously reported by FrozenFoodsBiz.com. “They’re a bunch of accountants and marketing people who’ve never run a restaurant or cooked a Quarter Pounder. Accountants and marketing people are good at coming up with plans that look good on paper, but may not work in real life.”
Stock Prospects on Rise
Back to those who are bullish on the fresh beef play, Mark Kalinoswki, an analyst with Nomura-Instinet, has increased his earnings forecast for McDonald’s by 12 cents per share to $7.05 in 2018.
“Given McDonald’s strong same-store sales momentum, we raise our target multiple on the stock to 27x (from 26x),” he said while elevating the target price by $10 to $190 per share.
Another analyst, Peter Saleh of BTIG, is even more bullish, lifting his target price from $175 to $200.
“After several years of playing defense, we believe McDonald’s is finally returning to an offensive strategy which will yield strong comp growth and increased market share,” he commented on January 2.
Meanwhile, on January 4 the fast food chain relaunched its Dollar Menu in the USA. Delivering an average discount of about 13%, it is expected to generate additional traffic. If it will be enough to significantly boost same-store sales as diners supplement orders with additional menu offerings in addition to bargain-priced staples, or simply reduce the overall check, remains to be seen.