There's a problem with the theory that McDonald's (NYSE:MCD) is suffering because of a shift to more healthy eating. The problem? The No. 2-by-revenue fast-food joint, Burger King Worldwide (UNKNOWN:BKW.DL), delivered a global same-store sales increase of 2.4%, and 7.7% in constant currency, for the third quarter. Compare that with a 3.3% slide for McDonald's for the same period. I don't know about you, but I'm not seeing Burger King as exactly a health mecca next to McDonald's. So what's going on?
Burger King serves up tasty results
At the top of the third-quarter earnings release, CEO Daniel Schwartz stated:
We built on our positive momentum in the third quarter as we delivered some of our strongest sales levels in recent years and continued growing our global footprint. In the U.S. and Canada, we posted our best quarter of comparable sales growth since 2012 due to our consistent strategy of impactful new product innovation balanced by compelling value offerings.
Within the U.S. and Canada, Burger King's same-store sales jumped 3.6% and chalked up the fourth quarter in a row of positive comps. The company certainly didn't credit its success to healthy food offerings. Instead, it pointed to a few product launches with a big impact.
Specifically, Burger King singled out its reintroduced Chicken Fries, along with an all-digital and social media campaign that propelled sales of its BBQ Bacon Whopper. McDonald's may have been specifically referring to Burger King when it complained in its own release of "sustained competitive activity."
It wasn't a grilled chicken salad with low-fat dressing that won guests over to Burger King. It wasn't some hormone-free grass-fed beef burrito, either. It was good old-fashioned fried food and BBQ sauce, along with artery-clogging bacon on a slab of beef that came from a cow raised in -- well, wherever.
I'm not saying there isn't a market for perceived healthy eating, even if places such as Chipotle Mexican Grill aren't exactly health-food havens in the first place. I'm just saying that the trend toward higher-quality food is more of a niche than the new norm. That trend isn't enough of an excuse for McDonald's when its close competitors like Burger King are doing OK by appealing to millennials who are buying BK's "junk food."
The conference calls
Listening to the latest conference call McDonald's executives held with analysts was disappointing. It's loaded with excuses. Though management took some ownership for the slippage, they presented some new, seemingly shoot-from-the-hip plans in an attempt to to reinvent the company all over again -- and they were vague on the details.
Meanwhile, the Burger King call was almost like a pep rally, focusing on how awesome the chain thinks it is. Management discussed things that worked, such as the launch of the Ultimate Cheeseburger, the King Deals value menu, and the continued popularity of the Big King sandwich, which features two beef patties -- in other words, big "junk" food.
Maybe the real magic behind Chipotle is those big burritos. They have lots of carbs, calories, sodium, and fat, which translate to lots of flavor for many people. Burger King is going with even more fatty bacon, and nothing says unhealthy (yet yummy!) more than thick-cut bacon.
My suggestion for McDonald's: Get rid of your product development team and start from scratch. For having such an oversized and complicated menu, you guys haven't had a "wow" introduction in what seems like years.
I don't think the problems McDonald's and its supporters cite -- weather, millennials, marketing, the economy, or healthier eating -- are the culprits. The problem is the product innovation team.
Burger King has the spotlight once again because its management keeps coming up with great product and marketing ideas -- like McDonald's used to.
McDonald's is the company that scored major runs with the McRib, the Monopoly prize game, the McCafe, and the McGriddle, but all of those concepts are now over a decade old. All smash hits, granted, but until McDonald's manages to make contact with the consumer ball, the way Burger King is doing over and over lately, McDonald's will slip more into Burger King's shadow instead of staying in the spotlight where it used to be.
Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.