Friday, March 23, 2007

McDonald's tests bigger burger
Angus Third Pounder exceeding sales goals in California roll-out
Updated: 1:12 p.m. PT March 23, 2007

TOLUCA LAKE, Calif. - McDonald’s is fattening up its menu, testing the concept of putting one-third of a pound of beef on a bun. It would be its biggest burger yet.

The Angus Third Pounder is being tested in California. It tastes like really big, super-sized Big N' Tasty. The patty is a little bit like a bigger, better Quarter Pounder.

The question is, What took so long? When it comes to so-called premium burgers, McDonald’s is following the herd.

The Angus Third Pounder is being tested at McDonald’s throughout southern California. There are three different versions at $3.99 each — the Angus Deluxe, Angus Mushroom & Swiss and Angus Bacon & Cheese.

That’s the same price as the so-called “Six Dollar Burger” which Carl’s Jr. rolled out followed by Hardee’s, which are actually a half-pound each. Both fast food chains are owned by CKE Restaurants.

The burgers have been a huge hit for that company, and one reason Burger King followed with its own Angus burger. These burgers — we talked to all three companies — have slimmer margins but higher profit per burger. Wedbush Morgan says burgers still account for 50 percent of the $123 billion fast food industry.

“For the first 17 days, we're either hitting or exceeding all of our targets at this point,” said Chris Woicik, a McDonald’s regional vice president. “So we're very, very pleased with the early results. But again, we’ve only got 17 days of it so we need a longer time to read it.”

Competitors do not seem worried.

“We've been in the Angus steak burger business for three years, and we're consistently ranked as the No. 1 selling Angus burger across the country,” said John Schaufelberger, a Burger King marketing vice president. “In fact, this idea is becoming global in nature, and global consumers are becoming interested.”

Andrew Pudzer, president and chief executive officer of CKE, fired a shot across the cow bow.

“You never like to see somebody come in and compete directly with your products, but theirs is distinguishable enough from ours, that from a competitive standpoint we're not particularly concerned about it,” he said. “We're looking into what McDonald's is doing, but we're pretty sure it's a McAngus product, not the kind of product we're producing.”

It may takes months for McDonald's to roll this out nationally, but expect the company to expand in areas where others have already succeeded.

“If egg rolls became wildly popular and consumers wanted them, McDonald's, I'm pretty sure, would make them sooner or later, and I think that's what's happening here,” said Tony Brenner of Roth Capital Partners.

McDonald’s has been on a roll, with its stock up more than 60 percent since mid-2005 and same-store sales growing at up to 20 percent.

“They've had one of the most amazing comebacks in my knowledge of the industry,” said Dennis Lombardi, executive vice president of WD Partners, a retail consulting firm. “It will be a Harvard business case — an absolute amazing turnaround and revitalization of a brand.”

The real competitors for the burger may be casual dining chains like Applebee’s. Or it could cannibalize quarter-pounder sales at McDonald’s, and that is something the company will be watching.