Table Service And Gourmet Burgers: Will This Transformation Really Help McDonald’s?

McDonald’s (NYSE:MCD)   announced recently that it will roll out table service at its 400 revamped restaurants across the U.K. by the end of 2016, after a successful trial last year. The company also plans to double the number of locations selling its new range of premium burgers called the signature collection. ^[1]. While McDonald’s international lead segment saw a 4.2% growth in comparable sales in Q4 2015, the company’s strong fourth quarter comparable sales in the U.K.  made it the 39^th consecutive quarter of growth for the region. ^[2]. McDonald’s revamped around 25% of its restaurants in the U.K., which now offer self-order kiosks, digital merchandising, and customized order pick up points. The table service test in the region got a favorable response, leading to a wider roll out in 2016. We believe McDonald’s efforts to adapt to changing consumer needs by focusing on a better quality menu and a more customized service could help drive its revenues in the future, if it is able to sustain consumer interest in these innovations without losing its identity as a quick service, affordable, fast food establishment.

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Sustaining Consumer Interest Over The Longer Term Will Be Key

McDonald’s initiatives in the U.K. have been designed to attract more families, and the company is looking at innovative ways to create a competitive edge over new players such as Chipotle, and established competitors including Burger King. We believe that while these initiatives will lead to attracting consumers initially, the company’s efforts to sustain this traffic as the novelty factor fades out will be key to drive revenues in the long term. It appears that through the initiatives of table service and a signature menu line serving gourmet burgers, McDonald’s is trying to transform itself from a fast food restaurant to a more premium food establishment.  While a sit down meal and a gourmet menu can increase the average spend by a customer at the company’s restaurant, the company could lose customers who prefer a quick, affordable meal.

While table service has had a successful trial in the U.K., whether a wider section of consumers will adapt to the trend of premium burgers served on their tables will be visible in the next few quarters. The company is working on several innovative ideas as part of its transformation program to improve its market share. All day breakfast, McDonald’s Next, which serves healthy food options along with the regular menu, and table service with gourmet burgers seem to be parts of its new strategy. While some of these initiatives seem to be showing good results, whether the fancy uplift will generate higher revenues on a sustained basis, or not, is yet to be seen.

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1. McDonald’s to introduce table service at 400 UK restaurants, The Guardian, January 25, 2016 [↩]
2. McDonald’s Q4 2015 Earnings Transcript, The Street, January 2016 [↩]