McDonald's Turns 75 -- What It Could Learn From Its First Store in the '40s

NEW YORK ( TheStreet) --  McDonald's (MCD) turns 75 Friday, but the storied, stumbling burger chain could learn a thing or two from its younger self.

Times were certainly different for the Golden Arches when its first restaurant opened in San Bernadino, May 15, 1940. For starters, the California eatery was called McDonald's Bar-B-Q and offered a simple menu of comfort foods such as barbecued beef, giant malts "made with real milk," and "aristocratic hamburgers." And customers were invited to watch as the restaurant's food was being cooked. There were even carhops to serve drive-in customers  -- a model that has served Sonic (SONC) quite well through the years.

Things are quite different today. Now a person walking into a McDonald's is greeted by intimidating cooking machines and a giant list of menu choices for processed food.

McDonald's is a giant ship trying to reverse dreadful sales and a tarnished public image. Under new CEO Steve Easterbrook, McDonald's plans to improve food quality, reduce bureaucracy and re-franchise many restaurants in a bid to lure back customers and re-invigorate a stock that has shed 3.8% in the past two years, while the S&P 500 has risen 27%.

But for McDonald's to truly thrive again, execs at its Oakbrook, Ill. headquarters may want to channel several things from that original location in California. TheStreet takes a look at three things the first McDonald's could teach today's bloated 75-year-old self.


 

1. Simplify the ingredients.

Written on the original restaurant's menu in California: "Other places advertise their meat as barbecued when it is merely cooked in the store...You are welcome to see our meat while it's actually being barbecued in our own Barbecue Pit." Have you ever seen a McDonald's burger being made up close and personal? How about a Chicken McNugget?

Unlike today, there was a real authenticity to the menu at the store in 1940. That authenticity in terms of ingredient origin and cooking process are what continues to power lofty sales gains at high-flying chains today such as Shake Shack (SHAK) and Chipotle (CMG). At both chains, customers are able to see their food being prepared and both companies have also championed the use of better ingredients --- Shake Shack with its non-GMO potato bun and hormone-free burger meat, and Chipotle with a GMO-free menu and host of organic veggies. 

McDonald's execs may still not understand that consumers today want to see their food being made and yearn for high-quality ingredients. When asked by TheStreet in early May whether McDonald's would introduce organic lettuce for its burgers, Easterbrook was non-committal, although he acknowledged that "consumers are reframing the conversation around food."

Some analysts agree the chain needs to enhance its ingredients. "A back-to-basics approach to store operational improvements needs to be matched with the reality and perception of improved McDonald's ingredients and products," wrote JP Morgan analyst John Ivankoe, on May 5.  

Earlier this year, McDonald's did announce that it would stop using antibiotics important to humans in its milk and chicken. But in the end Easterbrook concluded, "We all need to step up our game."


2. Stop advertising as if it was 1985.

Recently Twitter has been buzzing with comments about the return of the Hamburglar to McDonald's advertising. The costumed character from the 1980s, which had been used to sell Happy Meals to children, has undergone a few cosmetic changes to appeal to a broader audience.

First, the Hamblurgar has been turned into an actual human being, rather than a guy in a costume. Second, the Hamburglar is married, yet still finds time to go around stealing low-priced hamburgers from the unsuspecting? Odd. Meanwhile, Ronald McDonald sightings at restaurants continue to pepper Instragram. What's next, Grimace re-emerging 50 pounds slimmer and bald?

The return of the Hamburglar is a strong reminder of why consumers no longer visit the Golden Arches. Chipotle doesn't have a mascot dressed up like a burrito bowl, nor does Shake Shack employ any similarly cheesy marketing. Both of those red-hot companies lead with their food.

Chipotle notoriously spends very little on marketing, save for handing out free burrito cards at community events. Yet, its sales rose 10.7% in the first quarter, whereas McDonald's U.S. fell 2.6%.  Shake Shack's first-quarter sales surged 11.7%, driven by successful openings in new locations and strong word-of-mouth.  

McDonald's from 1940 likewise emphasized its food, including "giant malts made with real milk", "famous barbecue beef, ham or pork," and meat barbecued in the store's own pit.

3. New products need to be bolder.

The first McDonald's had a simple menu, one consisting of bold barbecue and straightforward hamburgers and fries. What the restaurant did, it did well, and customers lined up for the grub. 

The McDonald's of today, by contrast, recently introduced a series of new items that seem to have fallen on deaf ears. The latest premium items, three types of sirloin burgers and an artisan grilled sandwich launched in April, have failed to significantly lift sales. McDonald's U.S. sales declined 2.3% in April.

In several taste tests of the new items in the New York area, TheStreet found the new items to be grossly under-seasoned and poorly constructed. In March, McDonald's brought back premium chicken selects in a bid to add healthier items to its menu. But U.S. sales remained negative, and the tenders are now being pulled from menus nationwide.

The reality is that McDonald's needs new sandwiches, or sides, that don't resemble anything else on the menu today or five years ago. The power of successfully releasing new products, often at higher sales prices, can easily be seen at Shake Shack.

The chain's recent introduction of its Shackmeister Burger, which features fried shallots and special "Shack Sauce," has positively impacted recent results, as has the reintroduction of crinkle-cut fries. Also, the company recently introduced what it calls a "Custard Calendar," with a weekly special flavor.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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