Call it the chicken revolution, but fast-food chains are betting on poultry to win back customers, and McDonald's (MCD -1.63%) won't be left behind. The iconic hamburger chain is upgrading its brand with new chicken offerings, including bone-in wings, as well as refreshed beverage options and restaurants, to compete with fast-casual rivals.
McDonald's new growth strategy is called McDonald's > NEXT, with a main focus on higher-quality food and drink items, restaurant redesigns, and improved customer experience.
Is this a gimmick investors should ignore, or can the Golden Arches win again in a challenging consumer environment?
NYSE: MCD
Key Data Points
The fast-food company not only wants to differentiate itself but is also emphasizing the challenging consumer environment, where discretionary dollars are limited. Consumers expect more for their money, and the McDonald's > NEXT strategy aims to address this by offering value deals and enhanced hospitality.
McDonald's is taking a necessary and calculated risk with its reimagining of the fast-food experience. An upgraded menu could put pressure on the company's margins, as premium ingredients cost more. Still, the long-term return on investment could be substantial if hungry consumers consistently choose McDonald's over rivals such as Starbucks or Chipotle.
Image source: Getty Images.
There is always a risk that new menu items or restaurant redesigns could be complete misses. If the chicken items fall short of the standards set by Raising Cane's or Chick-fil-A, consumers won't waste valuable dollars on subpar items. The strategy depends entirely on whether McDonald's can deliver on value and taste.
Should investors bite?
Shares of McDonald's are down 9% this year and are trading at a reasonable price. McDonald's stock has underperformed over the past five years so that a successful growth strategy could reinvigorate the 86-year-old American institution.
The stock's trailing P/E ratio is currently below 23, and with a quarterly dividend of $1.86 per share, McDonald's investors could see renewed growth alongside solid income.
New items will be tested in a limited number of stores before being rolled out more widely. This gives McDonald's a real opportunity to get its recipes for food and growth right. Long-term, I think this new focus is just what the brand needs.
