Here’s How McDonald’s Is Now Seeking To Attract Millennials

With 75.4 million millennials in the U.S., this generation has surpassed baby boomers to become the largest generation of the nation. With young immigrants adding to this group, it is projected to peak in 2036 at 81.1 million. As this generation enters its high spending years, McDonald’s (NYSE:MCD) cannot ignore this large section of the population. The fact that just 20% of millennials have tried the company’s flagship Big Mac is not encouraging. Several initiatives such as healthier food options, fresh burgers and customized orders are being taken by McDonald’s to attract this generation to its restaurants. However its third quarter results and company’s future guidance is not encouraging, indicating that these measures might not be enough. (Read Will McDonald’s Be Able To Revisit Its Past Glory Days?). In order to attract millennials, the company recently began testing the Sriracha Big Mac in more than 100 restaurants in Ohio. Sriracha is a spicy sauce found in dishes in Southeast Asia and popular among millennials. Based on the feedback of this test, the company might introduce this burger nationwide.

See our complete analysis for McDonald’s

McDonald’s is looking to attract millennials through healthy initiatives that include: 1) using fresh beef patties; removing artificial preservatives from its chicken nuggets; and, 3) replacing margarine with butter in its food items. As the restaurant is losing its appeal in this millenial “American way of living”, the company is working hard to test new menu items to ensure that this younger generation can relate to its offerings. The company recently discontinued its “Create Your Taste” menu platform, which allowed customers to customize their burgers using digital kiosks.  Instead the company is now testing “Signature Crafted Recipes”, where diners can customize their sandwich with topping bundles. These experiments can better engage consumers and provide healthier menu options, which together can potentially increase the average spend per customer visit to the restaurant. Yet for McDonald’s, it impacts the speed of the delivery of the order as well. Still there is upside:  If the company is successful in attracting more millennials to its restaurants, and they in turn spend more due to their preference for exotic and healthier menu items, this metric an increase at a rapid pace.  An average spend of $4 by the end of our forecast period can lead to a nearly 20% upside in our price estimate.

However these menu innovations come at a cost. While pre-cooked burgers can be heated and served to drive through customers within 90 seconds, fresh patties take nearly 10 minutes to prepare. Customers who are used to McDonald’s fast service are not willing to wait longer for their orders. We believe McDonald’s is currently in a transitional phase as the company experiments in several ways to make itself relevant for the largest generation of the nation. Continued innovation in this direction,  in developing more desireable menu items and more technologically advanced service items, should show results over the long term.  The company is also working on its social media efforts to become more responsive to online feedback of millennials. Whether millennials who grew up thinking of McDonald’s as cheap “fast food” will finally warm up to the “new” McDonald’s is an open question.  With the promise of healthier meal options and a broad and deeper range of menu options, McDonald’s could well recover at least some of its glory, given its past turn-arounds.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology