Back in September, fast-food giant McDonald's (NYSE:MCD) began selling bone-in chicken wings as part of a limited-time promotion, putting the company in direct competition with Yum! Brands' (NYSE:YUM) KFC and Buffalo Wild Wings (NASDAQ:BWLD). The company bought 50 million pounds of chicken wings, planning to sell them for a dollar a pop under the moniker of "Mighty Wings."
When this promotion was first announced, I wrote an article that predicted that Mighty Wings would be a flop, with the high price being the biggest issue for consumers. It turns out that I was right, and now McDonald's is stuck with 10 million pounds of unsold chicken wings.
What went wrong?
In the Wall Street Journal article that reported the unsold wings, an anonymous franchisee is quoted as saying: "Mighty Wings are proving once again that we can't sell premium items in large numbers because we still have the Dollar Menu."
This statement says a number of things about the current state of McDonald's. First, McDonald's is simply not a premium brand, however hard the company may try. McDonald's has grown to its current size not because of quality but because of value. At the same restaurant that sells double cheeseburgers for a dollar, premium chicken wings don't work.
Mighty Wings were essentially KFC quality at Buffalo Wild Wing prices, and that's a combination that cannot succeed. At $2.99 for three wings, McDonald's priced Mighty Wings well above the competition. Five hot wings at KFC cost $3.99, or $0.80 per wing, compared to $1 per wing at McDonald's.
The comparison gets even worse for McDonald's when restaurants like Wingstop are considered. The 600-location chain that specializes in wings sells 10 wings for $6.99, or about $0.70 per wing, with the price per wing declining with volume. It baffles me that McDonald's expected to be able to compete with its price so far above that of the competition.
McDonald's Mighty Wings were priced similarly to Buffalo Wild Wings, a pretty serious misstep given the quality gap between the two companies' food. The poor results were predictable, much like they would be if McDonald's attempted to sell an $8 cheeseburger. Fast-food quality at premium prices just doesn't work. Buffalo Wild Wings provides an experience, with sports playing on a myriad of TVs and plenty of beer to go along with the wings. McDonald's offers none of this, only mimicking the price.
Frustration is setting in
The quoted franchisee above uses the phrase "once again" to describe McDonald's attempts to sell premium items, signalling that frustration with the menu is beginning to take its toll. In November, the company acknowledged that it had added too many new menu items too quickly, and that service had suffered because of it. New items such as premium coffee drinks, smoothies, salads, and wraps have reduced efficiency and hurt business, and Mighty Wings certainly didn't help the cause.
With McDonald's desperately trying to boost same-store sales, franchisees are suffering with poorly-thought-out promotions like Mighty Wings. What's worse, McDonald's is forcing franchisees to participate in another promotion to clear the remaining Mighty Wings inventory, with the threat of having to absorb the costs if they don't comply.
With a large fraction of McDonald's restaurants worldwide franchised, keeping the relationship between the company and the franchisees positive is extremely important. But in the quest for higher sales, McDonald's is making it harder to turn a profit at the restaurant level. This isn't a good long-term strategy.
The bottom line
McDonald's is trying to be all things to all people, desperately trying to boost sales at the expense of efficiency and franchisee relations. Mighty Wings were a huge flop, embarrassing the company and upsetting franchisees. McDonald's needs to simplify its menu and stick to what it's good at, turning its stores back into the well-oiled machines they used to be, before lattes and wraps slowed everything down. Mighty Wings were clearly not the answer.
Fool contributor Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings 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.