Beyond Burgers: New McDonald’s Menu Makes Run for the Border

Self-described “burger guy” Dick Shalhoub listened intently last summer when Southern California focus groups said they were hungry for more than McDonald’s Corp.’s trademark hamburgers.

Within days, the owner of 11 McDonald’s restaurants was in a test kitchen where franchisees and McDonald’s executives were tasting their way through hundreds of potential menu items.

The yearlong culinary search by McDonald’s culminates Aug. 25 with the introduction of the Fiesta Menu, half a dozen Mexican-style menu items at 700 restaurants from San Diego to Ventura.

The late entry of McDonald’s into the crowded market for Mexican-style fare represents a risky but important step for the world’s largest restaurant chain as it tries to push decision-making closer to the front counter.

“McDonald’s is letting operators in Southern California take the ball and run with it,” said Shalhoub, a 16-year McDonald’s veteran. “It’s a big leap of faith from a national and divisional perspective to let us have this kind of flexibility.”

The Fiesta Menu, with $2.49 breakfast burritos, $2.89 Southwestern-flavored sandwiches and the $1.79 Dulce de Leche dessert, is designed specifically to meet Southern California’s tastes, operators say. That the Oak Brook, Ill.-based company would allow Southern Californians to have it their way marks a distinct change for a company that has considered uniformity of service its hallmark.

Frustrated operators began to challenge the one-taste-fits-all strategy during the late 1990s as domestic sales stalled. As they pushed for greater regional autonomy, operators argued that they needed local menus to counter a McFlurry of competing culinary tastes.

Franchisees successfully argued that customers would be happier and profit margins fatter if menu boards reflected local palates. A Big Mac remains a Big Mac, whether it’s sold in Madrid, Mexico City or Murietta. But McDonald’s is selling bratwurst in Minnesota, lobster sandwiches in Maine and Quarter Pounders in Nebraska topped with mushrooms and Swiss cheese.

With Mexican-inspired breakfast, lunch and dinner dishes and a dessert, the Fiesta Menu represents one of the chain’s most comprehensive menu changes.

“I’ve been with McDonald’s for 31 years, and I’ve never seen us attempt to put [in] such an all-encompassing concept that hits on so many different cylinders,” said Jeff Schwartz, McDonald’s Los Angeles-based regional manager.

The chain that generated domestic sales of $19 billion at 12,815 U.S. locations in 1999 has reason to pay close attention to what Southern California is eating. Though the region is second in sales to the New York-New Jersey market, Southern California annual sales per store are believed to top the $1.8-million national average.

The new menu items are an effort to lobby against what’s known as the veto vote. “If one person wants Mexican and the other wants a burger, they might go to where they can get both,” said Randall Hiatt, president of Irvine-based Fessel International, a restaurant consulting firm.

Changing menus can be a risky business. Recipes that taste great in a test kitchen can overwhelm busy kitchen workers. The added costs of storing and preparing ingredients can sap profit margins. And complicated menu boards can confuse customers who justifiably might doubt that a burger joint can double as a taco stand.

“I question the sheer complexity of McDonald’s menu as it exists today because there’s already too damn much choice,” said Peter Sealey, a former Coca-Cola Co. marketing executive and author of “Simplicity Marketing,” due out in the fall. “Go into McDonald’s, look at the menu and try to make a choice. Contrast that with In-N-Out Burger, which has a beautiful simplicity in all that it does.”

As McDonald’s runs for the culinary border, it also risks being branded a follower rather than a leader. “A lot of people have already glommed onto the Mexican food sector,” Hiatt said. Del Taco long has offered burgers alongside its Mexican-style fare, for example, and the Carl’s Jr. chain has sold Green Burrito-branded food since 1994.

The Mexican-style category features ruthless competition--as market leader Taco Bell Corp. has learned. The Irvine-based company fired its top executive and advertising agency in July after reporting a falloff in sales at stores open more than a year, an important industry measure.

McDonald’s knows the risks of striking out--as it did with the ill-fated McLean Deluxe, a low-calorie sandwich that bombed in 1996. But shareholders enjoy the sweet taste delivered by such hits as the Egg McMuffin breakfast developed by Santa Barbara franchisee Herb Petersen.

Operators say they’ve done their homework for the Fiesta Menu. A corporate chef from Oak Brook vetted each recipe tested at a McDonald’s test kitchen in Industry. Food suppliers were asked to assess ingredient pricing and availability. Operators say new kitchens recently installed will accommodate the new menu items, and a strong regional marketing campaign is planned.

Still, operators know customers ultimately will determine the Fiesta Menu’s fate. “Will it be a home run? I don’t know,” Shalhoub said. “But we’re confident that it will be at least a double, and maybe even a triple.”

McDonald’s makes it a practice to tailor its menu for local tastes overseas. Stores and signage look pretty much the same around the world, but it’s no accident that Mexico City restaurants offer McPatatas, thick French fries with added spices designed for the local market.

Menus from Long Island to Long Beach, though, were pretty much mirror images until the late 1990s, when the company began to acknowledge the need to react more swiftly to consumer demands. In the past, observers say, the chain’s new products were channeled through a corporate test kitchen in Illinois.

That proved to be a time-consuming and costly route. And Oak Brook occasionally cooked up such high-profile failures as the Arch Deluxe, which cost a reported $100 million to develop and market.

“McDonald’s is now a much more decentralized company,” Schwartz said. “We’re focused more on Southern California consumers, on what the trends are, what consumers are interested in--and what they expect and will allow McDonald’s to do.”

The local menus became a reality in the late 1990s as McDonald’s completed a painful restructuring that eliminated jobs at the corporate headquarters in Oak Brook and transferred power to five newly established regional headquarters, including one in Irvine.

The changes were designed to get revenue and profitability back on track--as well as to meet operator demand for a more-responsive corporate headquarters. Then, “things were not wonderful,” one Southern California franchisee recalled. When the corporation announced a 55-cent Big Mac and breakfast promotion in 1997, for example, many franchisees refused to cut prices.

Corporate staffers and operators maintain that their retooled company once again is competitive. More than $400 million has been spent on modern kitchens and restaurant renovations. Now, McDonald’s says, operators are equipped to meet local demands.

For McDonald’s, that meant first sitting down and listening to customers. Past research had been tilted toward the national stage, but last year the company focused on what Southern Californians thought about the chain.

Instead of focusing on the existing menu, McDonald’s asked what was missing. “We thought people were happy with the menu items we had,” said Alex Mestas, who owns 11 Southern California restaurants. “But we found out some things we didn’t know.”

The region’s fast-growing Latino population voiced a strong desire for a Mexican-style alternative, said Mestas, national chairman of the McDonald’s Hispanic Owners and Operators Assn. That demand dovetailed nicely with a growing appetite among the general population for Southwestern-style cuisine.

The search for menu items took franchisees to Mexico City, where they spent three days visiting McDonald’s locations. “I was one of the explorers,” Mestas said. “We talked to customers and ate what they were eating. We wanted to see how the restaurants were using different sauces and condiments.”

During more than half a dozen meals at Mexico City McDonald’s restaurants, Mestas placed his bets on two popular breakfast items, the McBurrito a la Mexicana, a flour tortilla wrapped around eggs, chilies and sausage, and McPatatas con Queso, a potato dish with cheese sauce.

Subsequent focus groups in Southern California, however, turned thumbs down on both entrees. “I was surprised,” Mestas said. “But what I like might not be what the customers like. That’s one thing we’ve learned.” Mestas, who operates one of the McDonald’s restaurants that has been testing the Fiesta Menu items, reports that “people are crazy about them, across all demographics.”

Shalhoub, who sampled more than 250 recipes during sessions at a fully equipped McDonald’s test kitchen in Industry, also uncovered personal favorites. Sitting alongside McDonald’s corporate executives, suppliers and restaurant operators, “we looked at presentation and taste more than anything else,” Shalhoub said. “And toward the end of the sessions, Oak Brook sent out the head chef to tweak the recipes and make sure we had things right.”

“The ratings were on a 1-to-10 scale, but sometimes, we’d have to write a ‘zero,’ ” Shalhoub said. “You’d take a bite and say, ‘That’s it. Sorry.’ ”

Shalhoub’s personal favorite--Hamburgesa al Pastor, a Mexico City McDonald’s pork patty served on a bun with chopped onions, chipotle sauce and pineapple--didn’t pass muster with focus groups. “We thought we had some knockdown successes, but sometimes, the later states of research really whopped us on the head,” Shalhoub said. “Some things completely failed to move the needle. But the customers are right, and we need to listen to them.”