McDonald's (NYSE:MCD) is suffering from identity issues. As fast casual restaurants like Chipotle continue to woo consumers away from the Golden Arches and traditional rivals like Yum! Brands' (NYSE:YUM) Taco Bell and Burger King (NYSE:BKW) increasingly look to eat into the breakfast business, Ronald and company have been forced to do some soul searching. The world's largest restaurant chain is attempting to reshape its image, hoping to shed unhealthy associations while still retaining its reputation for value.
Happy, the recently debuted mascot for McDonald's signature Happy Meals, is the latest attempt to put a new face to the company's operations. The toothy box debuted to unfavorable reactions on social media and news outlets, with critics quickly jumping to describe the new character as "scary," "terrifying," and "hideous." The harsh reviews highlight the messaging difficulties the company is facing.
Is McDonald's losing its grip on the kids meal?
McDonald's has historically done a much better job of appealing to children than its chief fast food competitors, but sales of the combo meals have lagged in recent years. While restaurants like Taco Bell, Burger King, and Wendy's have all packaged toys with meals to appeal to young consumers, the Happy Meal program is still nearly synonymous with the practice. It's not surprising to see the company attempt to appeal to an important demographic with a new cartoon creation.
Setting morality and health issues aside for the moment, introducing children to McDonald's at a young age is a great way to increase the likelihood that they will continue to do business at the chain as they get older. Naturally, this marketing approach has garnered its fair share of opponents, prompting McDonald's to infuse its child-based advertising initiatives with nutritional data and information. The move is a necessary one due to an increasingly health-conscious consumer base, but the perception of Happy Meals as "fun" is central to their appeal. Enter characters like Happy.
Happy isn't the first new mascot for Happy Meals to be introduced within the last five years (the character debuted in France in 2009). 2012 saw McDonald's debut Ferris and his animal friends, cartoon creations who emphasized the value of healthy lifestyles.
Happy looks familiar
The recent crowning of Happy as the new ambassador for its kids meals may be an indication that McDonald's is looking to put some of the focus back on fun. Happy is still intended to be an ambassador for health, but the character's design bears a striking resemblance to the Minion characters from Universal's Despicable Me series. Across two movies, the franchise has generated approximately $1.5 billion at the global box office and spawned valuable merchandising opportunities.
The Minion characters are hugely popular with young children, so while Happy appears to be a failure with adults, the relevant jury is still out. The extent of the pushback against the character makes it unlikely that it will enjoy a long life as a center stage mascot, but reactions on sites like Twitter aren't a great gauge for whether or not Happy can become a hit with kids.
Taco Bell and Burger King aim to eat breakfast
The importance of marketing toward children for McDonald's is compounded by challenges to the company's breakfast dominance. Taco Bell recently made waves with a series of ads that took aim at McDonald's and brought attention to its own early morning offerings. The company's Breakfast Quesarito test item has been doing good business and getting solid reviews, making it the chain's most successful test product since the Doritos Locos Tacos. The Quesarito is likely to join the A.M. Crunch Wrap and the Waffle Taco as nationwide menu additions.
Burger King has taken a different approach to getting a bigger bite of the breakfast market: introducing burgers as a morning option for its customers. Whether this winds up being a winning play remains to be seen, but it's clear that breakfast is a focal battlefield for fast food giants.
Will McDonald's strike back on the breakfast front?
Rumors that McDonald's will extend its breakfast hours have circulated for years, but the influx of competition has brought added pressure to shake up its menu offerings. Such a move could help to ensure the company's breakfast food dominance, but it could also be pricey for franchisees. This could make it necessary for the company to step in and offset some of the cost. This is yet another instance where McDonald's faces a choice that has the potential to profoundly impact its corporate identity.
Happy is a sign of bigger problems
With sales of children's meals in decline, Happy is a stumble for McDonald's at a crucial juncture and a reminder of the inhospitable marketing climate the company faces. Ronald and friends have access to billion-dollar advertising budgets, and Happy Meals are estimated to make up approximately 10% of the company's sales. The Happy character may yet go on to win an audience, but with such immense resources and so much riding on the line, the grinning box makes for an uneasy savior.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. 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.