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September 16, 2011 5:29 pm
Top US fast-food restaurant companies are beefing up their hamburgers to keep up with an onslaught of competition from “better burger” chains, which have been gaining market share by offering premium meat and high-quality toppings.
McDonald’s started offering Angus beef hamburgers on fluffy buns, promising more thickness and juiciness. Rival Wendy’s now sells an eight-ounce hamburger, made from North American beef that is never frozen. And Burger King, trying to capitalise on greater health consciousness, is cooking “California” Whoppers, topped with fresh guacamole and ripe tomatoes.
The more expensive premium burgers, which in some markets exceed $5, show that the quick-service restaurant industry is moving beyond value menus to lure customers who strayed to “fast casual” or better burger chains. An array of start-ups have changed the market with made-to-order burgers that often feature exotic toppings or organic, grass-fed meat.
“I think that these better burger chains have definitely rattled the feathers of quite a few companies,” said Brad Ludington, restaurant analyst at KeyBanc Capital Markets. “They’re peeling customers away.”
The premium burger trend was popularised by California’s In-N-Out Burger restaurants, which were founded in the 1940s but expanded rapidly on the west coast in the 1990s. With a nod to that model, companies such as Shake Shack, Smashburger, Five Guys and Fatburger have been opening in more locations across the US and overseas.
A recent report by Technomic, a restaurant industry research firm, showed new high-end burger chains making inroads into the established market.
When Technomic surveyed consumers in 2009, 20 per cent ate at a speciality burger restaurant once a month, but last year that doubled to 40 per cent. To keep up with growing demand, the number of premium burger restaurants climbed 16.8 per cent in 2010 from the previous year, while US restaurant growth stalled at big fast-food chains.
Mary Chapman of Technomic said big restaurant chains have adopted more of a “barbell” strategy, offering their standard value menu to accommodate low-end customers and more creative and expensive options to keep up with the new breed of hamburger specialists.
Competition from better burger chains, which account for only about 3 per cent of the market, is good for the industry, according to Sara Senatore, restaurant analyst at Bernstein Research, because it gives consumers a new option priced between fast-food and casual dining. The focus on quality meats and toppings has forced industry leaders to sell healthier food.
“I think, given the demand environment, offering a premium-priced burger could make you raise your eyebrows a little bit, but it shows a continuing trend toward improved food quality,” Ms Senatore said. “All of the chains have ratcheted up the quality.”
McDonald’s has clearly taken notice. Donald Thompson, chief operating officer, was asked on a conference call in July if better burger chains were starting to pose a threat to the world’s largest hamburger chain. He expressed confidence in his company’s ability to offer a premium hamburger and said McDonald’s would use its size and supply chain to beat smaller rivals on pricing.
“You see the advent of more premium burger outlets coming into the marketplace and, frankly, I think it’s good for us,” Mr Thompson said. “I’m really looking forward to us having even more premium burgers.”
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