Is McDonald's Looking to Take a Page From Chipotle's Playbook?

McDonald's is rolling out new kitchen equipment that will allow for many more ingredients and a "build your own burger" approach. The plans seem to take a page from Chipotle's successful playbook. Is it enough for McDonald's to return to growth?

May 10, 2014 at 2:15PM

You can't blame McDonald's (NYSE:MCD) for wanting to capture some of the magic of its former spinoff Chipotle Mexican Grill (NYSE:CMG). But is a kitchen overhaul that will allow customers greater choice and the ability to design their own burger enough to win back customers that the Golden Arches has been losing to the burrito maker and other eateries?


Source: Wikimedia Commons

We may be about to find out. McDonald's has set the wheels in motion on ambitious plans to remake the kitchens at all of its roughly 14,000 U.S. locations. The big change will be the addition of a "high-density prep table" that will allow restaurants to offer customers more fresh ingredients and condiments to top their burgers and other sandwiches.

As fellow Fool Rick Munarriz told us last November, McDonald's was already testing a "build your own" sandwich at a California location with the new prep area. Customers could choose from 20 different toppings, and they were able to order from touchscreen tablets.

CEO Don Thompson last month called these prep stations "a key enabler for the future menu," although he stopped short of providing many specifics about what's to come. What he would say was that the stations will allow for more ingredients and for more efficient preparation of food.

Model of efficiency
McDonald's knows it needs to do something. Same-store sales in the U.S. for the first quarter were down by 1.7%, and operating income was off by 3%, directly attributable to fewer people going into their restaurants.

The rollout of the new equipment is expected to continue throughout the next few months, and it should be in all locations this summer, the company said in its recent earnings call.

If there's a model of efficient preparation of built-to-order food, it's Chipotle. Its short burrito- and salad-assembly line buzzes through long lines of hungry customers, and it helps to turn every store into a machine that practically prints $10 bills, one after the other, after the other.Images


Same-store sales growth for Chipotle was up 13.4% over the first quarter of 2013. That was an acceleration over the already impressive 9% same-store number in the prior quarter. Overall revenue for the chain was up 24.4%, to $904 million.

At this stage, McDonald's would love to have even a sliver of that growth in the U.S. In March, Bloomberg attributed McDonald's slowdown to both fierce competition in fast food, and to "declining consumer sentiment." It's not alone. Yum!'s U.S. same-store numbers for 2013 were flat with 2012.

Chipotle, however, has been able to rise above the competition, capitalizing on the decline of sentiment in brands like McDonald's.

A renewed focus
There were many references in McDonald's April earnings call about putting the customer at the center of the company's plans: "The key to our growth lies in our ability to place the customer at the center of everything that we do," Thompson said. The prep stations are a part of that effort.

Thompson acknowledges that this won't be an overnight success.

"... It will take time for consumers to notice the changes and reward us with increased visits," he said. "This is not about a silver bullet."

The Foolish bottom line
The new prep stations may not be a silver bullet, but they are good first step for McDonald's to build upon as it looks to win customers back. There's no clear link between its new prep tables and Chipotle's burrito-building machine, but there are certainly similarities.

If the fast-food standard-bearer is indeed taking a page from Chipotle's playbook, there's certainly no shame in doing so. The fact that Chipotle continues to buck the trends weighing on other fast-food companies shows it's doing something right.

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John-Erik Koslosky owns shares of Chipotle Mexican Grill. 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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