McDonald’s Next Opens In Hong Kong: Is This The Future Of McDonald’s?

40 years after McDonald’s (NYSE:MCD)  opened its first outlet in Hong Kong, the company is now trying a new dining concept in the region called McDonald’s Next. ^[1]. This concept restaurant offers a salad bar, in addition to the traditional McDonald’s menu and is using the company’s “Create Your Taste” touch screen to personalize salads with healthy ingredients for customers. With an ambience of bright lights, table service, and a “theater kitchen” with glass counters showcasing the ingredients, this appears to be one of the concepts the company is testing trying to move away from its traditional reputation of an inexpensive fast food place. We believe, as the company works on its turnaround plan, success of such concepts will define the future of McDonald’s.

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Customized, Healthier Menu Could Attract Consumers

McDonald’s appears to be experimenting with healthy menu items such as a salad bar. In Australia, the company transformed one of its outlets into a restaurant called “The Corner,” where  it is testing a completely different menu which includes salads, sandwiches, and barista-made quality coffee. ^[2]. It appears that the company is testing a similar concept of offering healthy menu items in McDonald’s Next at Hong Kong, along with its “Create Your Taste” platform to provide the highest level of customization to its customers. Touch screen kiosks allow users to customize their own salads with healthy ingredients such as quinoa, couscous, and asparagus. This customization was limited to burgers and sandwiches in other McDonald’s restaurants. We estimate annual customers per McDonald’s restaurant to increase moderately from around 700,000 in 2015 to about 720,000 by the end of our forecast period. However, if these initiatives attract more customers and this number increases to 760,000 by 2022, there can be a 5% upside to our price estimate.

In 2015, McDonald’s suffered from reputation issues and the brunt of shifting consumer preferences towards healthier menu items. After a long stretch of declining comp sales the company showed signs of improvement in Q3 2015 with a 4% increase in global comparable sales.  It now appears that McDonald’s is focusing on adapting itself to changing consumer needs. While in September 2015 the company announced that its 16,000 restaurants will fully transition to cage free eggs in the next 10 years, it now appears to be experimenting with different menu items. A customizable, healthy menu with options such as salads and an ambiance which is different from the traditional fast food places, appears to be the company’s strategy to experiment with alternate dining ideas. We believe the success of these concept restaurants will be key in defining McDonald’s future in the long run.

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1. ‘McDonald’s Next’ Hong Kong Concept Elevates ‘Create Your Taste” Dining, Brand Channel, December 11, 2015 [↩]
2. We Tried The Mysterious New McDonald’s That Just Opened In Australia, And There Were No Big Macs In Sight, Business Insider [↩]