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A look at McDonald’s newest menu strategy

A look at McDonald’s newest menu strategy

New smoothie flavors just the beginning, Chicken McBites, new flurries may be coming

McDonald’s launched the mango-pineapple flavor of its Real Fruit Smoothie lineup nationwide Monday, and the introduction could be the first of several new menu items to come to market more quickly in the United States.

Restaurant securities analyst Mark Kalinowski of Janney Capital Markets, who recently met with McDonald’s chief financial officer Pete Bensen, said the chain’s product pipeline would soon take a few cues from other areas of the world in terms of flavors and timelines for product offerings, which could lead to further gains in market share.

“In general,” Kalinowski wrote in a research note, “McDonald’s seems confident that it can continue to grab additional market share within the quick-service restaurant category in the United States. We view privately-held Burger King as a likely source of share gains for McDonald’s in the future, as it has been in the recent past.”

The chain of more than 14,000 hamburger restaurants in the United States launched Real Fruit Smoothies last July, with wild-berry and strawberry-banana flavors. Kalinowski noted that the smoothie products are effective across several dayparts, as 20 percent of smoothie sales and 30 percent of McCafe Frappe sales occur during breakfast.

McDonald’s is promoting the Mango Pineapple Real Fruit Smoothie will be supported with national advertising, beginning today, as well as coupon inserts, an iPad app, and a national bus tour in which the chain will deliver samples in dozens of cities.

Kalinowski highlighted other key points from his meeting with McDonald’s:

Shortening the cycle

“The U.S. is picking up the more rotational tactic more common to Europe regarding menu items,” Kalinowski wrote, meaning limited-time offers and new permanent menu items will start swapping in and out every six to eight weeks. He cited a test of McFlurries with Rolo candy bits as well as last November’s national McRib promotion as examples of this.

The national McRib offering drove a 4.9-percent gain in same-store sales last November, the company reported.

Global flavors

The company will be importing international flavors to go with its new menu strategy, Kalinowski wrote.

“McDonald’s notes that during a recent meeting it held in Singapore, approximately 180 different menu items were featured,” he wrote. “Expect more sharing of menu items around the world in the future.”

Examples of that crossover include Chicken McBites, a popcorn chicken-like dish that originated in the chain’s Australian division, which are being tested in the Detroit market, and full-size wraps, which are common in several European markets and soon will roll out to the United Kingdom. Late last year in the United States, McDonald’s tested similar products, like the Garden Fresh Wrap, Chicken Flatbreads and the Chicken Grande Wrap.

Real Fruit Smoothies and Frappes are sure to spread to international markets, Kalinowski noted.

Single sensation

McDonald’s Dollar Menu in the United States generates about 11 percent of sales, which is essentially unchanged from recent quarters. The chain introduced the Breakfast Dollar Menu nationwide at the beginning of 2010.

International performance

In China, where McDonald’s has stated aggressive growth targets in the near term, expansion will focus on 23 metropolitan areas, where drive-thru presents a sizeable opportunity to grow sales. Currently, only 10 percent of the approximately 1,300 McDonald’s locations in China have a drive-thru, but that capability will be present in about 60 percent of new openings in that country.

McDonald’s market with the highest operating income per unit is Russia. The chain opened its first location in Russia 20 years ago and has 300 units there now, with plans for 35 to 40 openings per year over the next few years.

The brand also recently sold 20 company-operated stores in Greece June 1. However, the move was not a reaction to that company’s debt crisis, as the sale had been in the works for two years, the company told Kalinowski.

Oak Brook, Ill.-based McDonald’s operates or franchises nearly 33,000 restaurants worldwide.

Contact Mark Brandau at [email protected].

Follow him on Twitter: @Mark_from_NRN

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