McDonald's (MCD) is hoping that it can "guac" and roll out of its latest funk, but it may have another thing coming. The world's largest burger chain began testing guacamole as a gourmet sandwich topping earlier this year, and the ingredient's been sticking around in regional test markets.
The fast-food giant kicked off the initiative in May in Denver. This is the home turf of Chipotle Mexican Grill (CMG), the market darling among fast-casual operators -- and a company that McDonald's once owned a controlling stake in before it spun it off and took it public nearly a decade ago.
Guacamole is a popular staple at Chipotle, and while the chain certainly isn't the first burrito roller to add mashed avocados, it is probably the one that has made it cool. Chipotle charges extra for adding guacamole, unlike the other ingredients on its assembly line. That's an important distinction, since Chipotle is positioning guacamole as something that diners are willing to pay nearly $2 more to have scooped into their food.
To that end, McDonald's test not only involves offering Tex Mex-style burgers and chicken sandwiches topped with guacamole made from Hass avocados, but it also lets customers pay an additional 89 cents to have guacamole added to any menu item or served on the side as a dip for fries, McNuggets or anything else that floats your proverbial McBoat.
The Long Way Back
McDonald's used to be on top of the world. When it snapped a stunning nine-year streak of monthly positive year-over-year comparable-store sales in October 2012, many figured it was just a fluke. There was no way that the iconic fast-food chain would keep stumbling. It was rolling out premium sandwiches, salads and beverages at higher price points than the traditional "Dollar Menu" fare that many associate with McDonald's.
It didn't pan out that way.
Burger-hungry patrons simply upgraded to the gourmet burger establishments that are sprouting up across the country. Folks who wanted something a little better without sacrificing speed of execution simply queued up at Chipotle and other fast-casual concepts. In other words, McDonald's was trying to reach an audience that had already found what it wanted somewhere else.
Things have been particularly bad close to home. Domestic locations have clocked in with negative year-over-year comparable-restaurant sales for eight of the past nine months and each of the past three quarters.
Reputations Are Hard to Change
Guacamole won't be the first time that McDonald's tries to buy its way into a higher class of customer, and there's little reason to expect it to succeed this time around. If Angus beef, white cheddar and iced caramel mocha haven't turned the tide, why should cheap guacamole do the trick? It's just the next trendy train that McDonald's is boarding.
This would seem to point to guacamole as a smart way for McDonald's to try to improve its flavor profile. Unfortunately, other studies point to longer wait times at McDonald's, and the company itself warned its franchisees last year that service complaints are on the rise. In other words, adding toppings and expanding the menu is either confusing the customer, slowing down the prep process or resulting in more incorrect orders.
If guacamole is the next bold initiative that fails to bear fruit, will McDonald's scale back its offerings and ambitions and get back to basics? It would be the Hollywood ending that would make this the perfect tale, but unfortunately that train may have also already left the station.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. For a list of high-yielding dividend stocks to complement your portfolio, check outour free report.
16 Questions from McDonald's Customers, Answered
It's Going to Take More Than Guacamole to Save McDonald's
Stories about McDonald's hamburgers that last years before rotting are frequently cited as evidence that fast food is loaded with preservatives. McDonald's USA offers another explanation. "The reason our food may appear not to decompose comes down to a matter of simple science. In order for decomposition to occur, you need certain conditions -– specifically moisture. Without sufficient moisture –- either in the food itself or the environment –- bacteria and mold may not grow and therefore, decomposition is unlikely. So if food is or becomes dry enough, it is unlikely to grow mold or bacteria or decompose. Food prepared at home that is left to dehydrate could see similar results. Look closely, the burgers you are seeing are likely dried out and dehydrated, and by no means 'the same as the day they were purchased.'" Keith Warriner, the program director at the University of Guelph's Department of Food Science and Quality Assurance, gives a lengthier explanation.
The ingredients in cheddar cheese slices: Milk, cream, water, cheese culture, sodium citrate, and 2 percent or less of salt, citric acid, sodium phosphate, sorbic acid (preservative), lactic acid, acetic acid, enzymes, sodium pyrophosphate, natural flavor, color added and soy lecithin. "The major ingredient in our signature slices is natural cheese, so the plastic rumor is just a myth," says Nicole Thornton, a McDonald's crew member in Sydney, Australia, in a video. Other ingredients include milk solids, butter and emulsifiers, which improve the color and texture of processed foods. "If you are referring to the smoothness and flexibility of our cheese," she explains, "that is obtained by blending heated cheeses and other ingredients with emulsifiers and then dispensing it onto a smooth chilled surface, just like some of the processed cheeses you'll find in the supermarket."
"McDonald's frying oil contains a small amount of an additive called dimethlypolysiloxane, which helps prevent oil from foaming and spattering in our restaurants," McDonald's USA explains. Dimethylpolysiloxane is also used in some non-food products, such as putty, caulks and cosmetics. For that reason, "there have been individuals who have erroneously claimed that these items are also in our food," the company says, noting that scientific names for ingredients can "sound scary" even if they are safe and approved by the U.S. Food and Drug Administration.
"For example, the salt you use to de-ice a driveway is a variation of the salt you use in the kitchen, however they are both sodium chloride," the company writes. A McDonald's Canada video explains the process of making McNuggets.
This is one of the most commonly asked questions about McDonald's food in Australia, according to Jonathon Pitt, a McDonald's franchise owner in Queensland. "Absolutely, there is no pig fat in our soft serve -- or in our shakes, for that matter," Pitt says in a video on how the frozen yogurt is made. "The only animal products in our soft serve are the dairy ingredients themselves." That includes milk, cream and milk solids. Sugar is added for sweetness and emulsifiers are used to keep the mixture from separating. "Vegetable gums are also used to give it a thick, smooth texture," he says. "And finally, a little vanilla flavor is added."
McDonald's uses chicken thighs, breasts, tenders and skin for flavoring, according to McDonald's Canada.
The company says it removed the substance from its meat three years ago. "Lean finely textured beef treated with ammonia, what some individuals call 'pink slime' or select lean beef trimmings, is not used in our burgers. Any recent reports that it is are false," McDonald's USA writes.
And what is "pink slime"? Lean beef trimmings -- what's left of the meat after all the choice cuts of beef are taken -- that are treated with ammonium hydroxide, creating the pink hue. Ammonium hydroxide kills bacteria, such as E. coli. The trimmings are banned from human consumption in the U.K., but the U.S. Department of Agriculture deems them safe for people to eat.
McDonald's french fries start with whole potatoes. Here are the ingredients: Potatoes, vegetable oil (canola oil, soybean oil, hydrogenated soybean oil, natural beef flavor [wheat and milk derivatives], citric acid [preservative]), dextrose, sodium acid pyrophosphate (maintains color), salt. They are prepared in vegetable oil (canola oil, soybean oil, hydrogenated soybean oil with TBHQ and citric acid added to preserve freshness), dimethylpolysiloxane added as an antifoaming agent.
"Once the potatoes are cut, we push the strips to a blancher to remove the natural sugars from the strips," Mario Dupuis, the production manager for McCain, a fries supplier for McDonald's Canada, says in a video. "This will prevent some variation in our color once we re-cook the product. Following the blanching process we add a a dextrose solution to have that nice even coat that we see in the restaurants. We also add an ingredient to our strips to make sure that we prevent the graying of our product throughout the process." Moisture is removed from the strips before they are fried, frozen and packaged for shipping.
None of McDonald's chicken in the U.S. contains added hormones, since federal law bans hormones in poultry. But the same can't be said for beef. "It is common U.S. cattle industry practice to use FDA-approved growth promotants, like naturally occurring or synthetic hormones, in animals being raised to produce beef," McDonald's USA writes. "McDonald's USA does not have any requirements beyond meeting all FDA regulations for use of growth promotants in cattle."
The company assumes at least some of its cattle spend time grazing before heading to a feed lot to be finished on grain. "Farming practices vary, but generally much of the cattle in the U.S., including the cattle we use for our beef, are grass fed for the first part of their lives," McDonald's USA writes. "When cattle enter feedlots in the latter part of their lives, they are provided a balanced diet that may include grains, grasses and mineral blends in their feed."
McDonald's uses forequarter and hindquarter trimmings, as well as whole muscle cuts in its beef patties. McDonald's Australia explains in more detail: "Beef trimmings are portions of meat remaining after the preparation of the whole muscle cuts. Forequarter refers to the front half of a side of beef and hindquarter refers to the rear half. Whole muscle cuts, or primals as they are referred to in the industry, are defined portions of a side [of] beef (or [carcass]). Forequarter primals include the blade, brisket, chuck, and spencer roll, amongst others, and the hindquarter includes primals such as the hind shank, silverside, thin flank and topside. The primals that may be included in our beef raw materials are usually from the forequarter, and typically include the chuck and the blade."
Most of the beef that McDonald's uses in U.S. restaurants is raised domestically, with a small percentage from Australia and New Zealand, the company says. All of the chicken served in McDonald's U.S. restaurants is raised domestically.
McDonald's USA explains that the beef is ground, formed into patties and then flash-frozen. "Flash-freezing helps ensure the quality and flavor of our burgers when they are cooked in our restaurants," the company says.
The beef patties are formed from ground beef in a factory, flash-frozen and sent to McDonald's restaurants. Before they are served, the patties are seasoned with salt and pepper and grilled for 40 seconds, according to a video from McDonald's Australia. They are held in a warming bin. "We keep our cooked burgers hot for a maximum of 15 minutes, but we're usually so busy that they don't stay in there for very long," Katie Geoghan, a McDonald's crew member from Melbourne, Australia, says in the video.
"Our eggs are not organic, nor are they free-range; they are from caged hens," McDonald's Australia writes. Caged hens produce the cheapest eggs, which helps keeps McDonald's prices low, the company says. "Our goal is to provide customers with great quality food at great value," the company's answer reads. "The cost of organic or free range eggs would raise the price of our food to a point that our customers may not feel they are receiving the value they've come to expect from us." In the U.S., however, McDonald's buys a "small amount" of cage-free eggs as part of a project on hen housing systems. "In the U.S., there is no consensus or firm scientific research on whether one type of housing system is better than the other, which leads to a lot of confusion," McDonald's USA adds.
Some of the eggs are cooked fresh, while others are pre-made. The eggs used for the Egg McMuffin are all freshly cracked onto the grill in McDonald's restaurants, according to the company. The scrambled eggs and egg whites are also cooked in the restaurants, but they contain liquid eggs instead of freshly cracked eggs. The folded eggs and the egg that comes in McDonald's sausage burrito are made in factories, flash-frozen and sent to restaurants, where the dishes are warmed before being served.
McDonald's Australia says eggs are held in a warming bin for no more than 20 minutes after cooking. "Like many restaurants, we prepare certain items beforehand, in order to serve our customers in a timely way," the company writes. "Our food is held at a food-safe holding temperature, in the case of eggs, 79°C, until needed for an order. However, we've become really good at anticipating peak times, and cook enough to meet demand. Your McMuffin is assembled only when you order it."