The line-up for the QSR big, premium burger cage match is almost complete.
The Clown joined the card as McDonald's (NYSE:MCD) finished testing three new 6-oz premium burgers with franchises in California and will roll them out, much to the delight of at least one franchiser.
Carl and The Star started the trend with the $6 burger and have been going strong ever since with a slew of thickburger offerings and good supporting advertising. This contributed to the very successful turnaround of CKE Restaurants (NYSE:CKR), owner and operator of Carl's Jr. and Hardee's.
The King rolled out angus burgers thereafter and has been piling on more patties recently at his Burger King (NYSE:BKC) restaurants. I am not sure the angus burger has made the same impact that it did at CKE, but it's still a part of the menu.
According to the article from The Capital in Annapolis, Jack hopes to get a shot at the title. It's testing a sirloin burger offering to add to the diverse menu that Jack in the Box (NYSE:JBX) already has in its repertoire.
It looks like it's going to get crowded in the ring, but I think this is a very good strategy from McDonald's. It now has multiple value propositions on its menu: Its dollar menu is for cheapskates like me to grab a double cheeseburger for my daughter, along with her more mid-range-priced McFlurry. (She prefers Oreo. I like mine with M&Ms.)
Salads and some coffee drinks are at the top of the menu, and have been selling quite well. So without adding that much complexity to its operations, McDonald's moved its menu from a pretty much value-based one, to one with a nice mix. I think this is a big reason that more people are coming back (same-store sales have been increasing) and margins have been improving (premium offerings bring premium margins).
Is The Clown ready to wrestle the premium burger title away from Carl and The Star? CKE has a pretty big head start and considerable inertia behind it. So taking the crown away right away probably won't happen. But it's tough to bet against the biggest man in the ring.
Is this a sign that it's time to invest in McDonald's? I don't think I would go that far. Shares have done very well over the last few years following a time when the market tossed out the company's prospects like crumpled up straw wrappers. And with a thumbnail valuation implying free cash flow growth of 11% to justify the share price today, I think we're going to have to wait for a screw-up in order to get an attractive price. Premium priced burgers are, unfortunately, far from that.
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Retail editor David Meier admits to enjoying a Thickburger every now and then much to the chagrin of his wife. He does not own shares in any of the companies mentioned. He is currently ranked 763 out of 25,436 investors in The Motley Fool's CAPS rating service. You can view his TMF profile here. The Fool takes its disclosure policy very seriously.
