McDonald's Plays Chicken

Once again, the sales news is good for McDonald's (NYSE: MCD  ) -- comps for December rose 5%, compared with a 4.9% jump in December 2004. The hamburger giant is clearly on track, but with 32 consecutive months of same-store-sales increases behind it, some might wonder how Mickey D's will sustain its growth.

Part of the answer, according to management, is to keep adding new items, a strategy that has to date worked well. Still, even good ideas can be pushed only so far, and McDonald's may be starting to run up against the limits of this one.

Ralph Alvarez, president of McDonald's North America, told the National Retail Federation Tuesday that as a brand, McDonald's has to continue to reach out to new consumers. He noted, for instance, that consumers are demanding more chicken and that McDonald's has to follow that trend because people are "not coming just for our tried-and-true core products."

Among the new items in the offing are a premium spicy chicken sandwich, an Asian salad, a yogurt-fortified breakfast drink, and more "robust" coffee. Alvarez stressed that the new items will not come at the expense of burgers, but with such a proliferation of new offerings, it's easy to see that McDonald's is diversifying away from its core burger-and-fries business.

Menu expansion so far has clearly been good to McDonald's -- it has attracted a new set of health-conscious and premium-minded consumers to its restaurants. It's notable, though, that the company has largely ignored its burger area when it comes to new offerings. That complacency could lead to customer alienation over the long run. After all, plenty of companies, from CKE Restaurants (NYSE: CKR  ) to Red Robin GourmetBurgers (Nasdaq: RRGB  ) , are working hard to reach burger aficionados. If McDonald's neglects its core products for too long, it may find that its next big project is winning burger fans back.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.


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