Patty Stakes : McDonald's Going After Adult Market as Sales Cool

By DENISE GELLENE

May 10, 1996 12 AM PT

TIMES STAFF WRITER

Hoping to fire up sluggish sales by winning over adult customers, McDonald’s Corp. on Thursday launched a tomato-and-lettuce hamburger that is smothered with hype.

The quarter-pound Arch Deluxe burger, two years in the making, isn’t much different from sandwiches offered at Burger King, Wendy’s and Carl’s Jr. But it helps McDonald’s plug a gap in a menu that appeals strongly to children but not to grown-ups.

McDonald’s is expected to spend more than $100 million to promote the burger, an extravaganza reminiscent of the hoopla surrounding the Windows 95 launch. The fast-food restaurant chain rented Hollywood’s Pacific Cinerama Dome for the launch, transforming it into a 70-foot-tall model of the Arch Deluxe.

As the stunt implies, the stakes for McDonald’s are high. Though it is by far the nation’s No. 1 hamburger chain, its performance domestically has been slipping. Operating income in the United States fell 4% for the first three months of 1996. McDonald’s international business now accounts for nearly 60% of its earnings.

McDonald’s expects the burger to generate at least $500 million in sales this year, a modest 3% of its 1995 domestic sales of $15.9 billion. It is the first in a line of premium sandwiches McDonald’s plans to introduce this year for adults.

McDonald’s hopes the new items, to include a meatier chicken sandwich and a larger fish fillet sandwich, will change adults’ minds about the restaurant chain. In a survey conducted by McDonald’s, 78% of adults said they thought McDonald’s had the best food for kids, while only 18% said it had the best food for adults.

“This is the one segment of the market that we’ve needed to go back and address,” said Mark Brownstein, a franchisee in Orange County. “This is the beginning of a new and more powerful McDonald’s.”

If nothing else, the launch, with celebrations in Los Angeles, Toronto and New York--where McDonald’s rented Radio City Music Hall--is creating a sense of momentum as the company pursues one of the largest expansions in its history. It plans to open more than 1,000 restaurants in the United States this year, an aggressive grab for market share in a business that is growing by no more than 5% a year.

Besides bolstering its adult fare, McDonald’s is taking steps to solidify its strong children’s business. It is in negotiations with Walt Disney Co. for dibs on its cartoon characters for Happy Meals promotions. A deal could involve cross-promotions of Saturday morning cartoon shows and sporting events on Disney-owned ABC.

Ross Taylor, a restaurant industry analyst with Deutsche Morgan Grenfell in New York, said the Arch Deluxe could boost sales of Happy Meals by making parents more inclined to eat at McDonald’s, “reducing the veto vote.”

McDonald’s is promoting the Arch Deluxe with commercials that show Ronald McDonald in grown-up settings. Teaser spots that began airing last week showed the clown playing golf, disco dancing, and shooting pool in a darkened billiard room. The spots closed with the line “Looks like McDonald’s is becoming a little more grown up.”

The new burger comes with cheese, a Dijon mustard sauce, onions, a potato flour roll and lettuce and tomato. Bacon is optional. The company’s plans call for using the same sauce and roll on the upcoming fish and chicken sandwiches.

According to McDonald’s, the Arch Deluxe is aimed that the $5-billion market for hamburgers with lettuce and tomato that McDonald’s inexplicably has not addressed until now.

Asked in an interview why the company had not acted sooner, Edward H. Rensi, president of McDonald’s USA, said. “I don’t know, really. We’ve always had a large focus on kids and family.”

Later, though, he said the company had launched unsuccessful lettuce-and-tomato burgers, such as the McDLT, which came in a box that kept the cold toppings separate from the warm burger.

“We’ve been testing lettuce-and-tomato sandwiches forever, with mixed results,” he said. Previous sandwiches, he admitted, “were little more than a quarter-pounder with lettuce and tomato. People told us they wanted something different.”

McDonald’s competitors were quick to say the Arch Deluxe is far from a gastronomic innovation.

“They are reacting to our success,” said a representative of Burger King, which sells a burger with lettuce and tomato and a double-cheeseburger with bacon. Wendy’s International has sold a quarter-pound cheeseburger with lettuce, tomato and bacon for 15 years.

McDonald’s “is spending $100 million to get Americans to believe they are the only ones with a product that every other chain already has,” said Denny Lynch, a vice president at Wendy’s.

Some industry analysts said the Arch Deluxe may have a tough time making inroads because it is more expensive than burgers offered by competitors. The Arch Deluxe is priced at about $2, while Burger King has been promoting the Whopper at 99 cents.

Success with the Arch Deluxe would give McDonald’s a well-timed lift. Analysts said that domestic revenue in April was probably flat, despite two Disney-related promotions. Average sales at stores open at least a year fell 2.4% in 1995 to $1.54 million from $1.58 million in 1994.

McDonald’s blames the drop in same-store sales on the addition of “express” restaurants that generate less revenue than traditional, full-sized restaurants. But some franchisees contend that sales are off because new restaurants are cannibalizing sales.

In an uncharacteristic break from the ranks, an organization claiming a membership of 200 franchisees, represented by San Diego consultant Dick Adams, is studying the impact of the expansion on franchisees, unhappy with the company’s current tactics.

However, Rensi said most franchisees are pleased with the expansion because it offers them an opportunity to acquire more stores.

“We have 2,800 licensees in the country and at any given time,” Rensi said. “Some of them are going to be mad about something.”

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Aiming for a Bigger McShare

McDonald’s, by far the largest U.S. hamburger chain, on Thursday launched a $100-million campaign to try to gain a bigger share of the adult market. Although the company’s worldwide net income has increased, operating income in the United States has been falling recently and per store sales at U.S. restaurants open at least one year dipped to $1.54 million in 1995 from $1.58 million in 1994.

U.S. Market Share

For 1995, by sales:

McDonald’s: 42.3%

Burger King: 18.2%

Wendy’s: 10.7%

Hardee’s: 8.3%

Jack in the Box: 2.9

Other: 17.6%

U.S. Restaurants

In thousands:

1995: 11.4

Stock Price