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Millennials influencing McDonald's product pipeline

September 12, 2013 by Alicia Kelso — Editor, QSRWeb.com

The influence of the vast Millennial generation has trickled into every facet of the restaurant industry — from the increased focus on mobile technology to specific menu preferences.

Millennials, for example, like customization when dining out. And with that inclination, McDonald's pipeline will feature "a lot more customization" next year, according to COO Tim Fenton.

"One of the things we're finding is the consumer, particularly Millennials, like a lot more customization. So, we're looking at different ethnic flavors that we can add to our products — different sauces, different ingredients we'll be able to put on our burgers," he said. "We've invested in our top line to have the capacity to do such, and you'll see some of it coming next year."

Fenton, along with CFO Peter Bensen spoke Wednesday morning at the Goldman Sachs Global Retailing Conference, touching briefly on the chain's pipeline and outlining strategies amidst a still-stagnant economy.

Mighty Wings rollout

Some analysts have attributed Millennials' preference for customization as a reason for a potential chicken wing shortage. Jeff Fromm, author and EVP of advertising firm Barkley, said the demographic gravitates toward wings because of their customization factor.

Perhaps coincidentally, McDonald's is set to rollout Mighty Wings nationwide this month after a test in Atlanta and Chicago that went "quite well," according to Fenton. The national promotion will run for six to eight weeks and if it's as successful as the company anticipates, the line could be extended so long as the supply chain permits.

During the test, McDonald's added a three-piece option, which yielded a higher average check and resonated well with the Hispanic and African-American consumer bases. To promote the nationwide rollout, McDonald's is leveraging a tie-in with the NFL, featuring three players who will promote the new item starting on Sept. 17.

Operationally, Bensen said there is a longer cook time with the wings, but units have "ample cabinets and storage, and staff went through all of the training and positioning" for a smooth introduction.

'Tough fight' for customers

Product pipeline initiatives, as well as restaurant remodeling and technology upgrades, have been prioritized as the company navigates a tough global environment. Fenton said global unemployment remains at its highest level in three years and GDP growth is at its lowest levels since 2009. These trends are expected to affect the informal eating out industry in nearly every market.

"Running a small business in today's environment is tougher than it was just few years ago given rising employee and commodity costs, more competition, heightened regulations and rapidly changing technology. With limited comparable sales growth overcoming these challenges is even more difficult," Fenton said. "As long as IEO industry growth is constrained and costs increase we expect our company operated margins to be pressured."

To recover some of those margins, Bensen said pricing and promotional activity are in focus. This, in part, explains the current spotlight on value within the QSR segment.

"The industry isn't growing which means we are fighting for the same customers that everyone else is. Value plays such a key role in attracting those customers. So things like short term promotions, that might come in with an average check a little bit higher than average, can drive a little bit more margin potential," Bensen said.

Fenton calls today's competitive environment "street play."

"There is a lot of price, discounts and couponing going on — even more than we've ever seen. It's a tough fight right now," he said.

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