LDN - Health and Fitness

McDonald's Quarter Pounders to be made with fresh beef

[March 31, 2017] (Reuters) - Fast food chain McDonald's Corp said on Thursday it would make its popular "Quarter Pounder" hamburgers with fresh beef, prepared when ordered, by mid-2018 in most of its U.S. restaurants.

Investors and analysts said the move, which would compete with rival Wendy's Co's promise of "fresh never frozen beef", could bolster sales but would require restaurant operators to make changes to cooking routines that could slow service.

It was not immediately clear what impact the use of fresh beef would have on margins at McDonald's USA, which does not disclose what percentage of sales come from the Quarter Pounder.

McDonald's U.S. restaurants have suffered four straight years of traffic declines, resulting in 500 million lost transactions since 2012.

The multiyear turnaround plan launched by Chief Executive Steve Easterbrook has included menu changes that address consumers' demands for fresher, simpler food.

To that end, its U.S. restaurants have swapped butter for margarine in Egg McMuffins and stopped buying chicken meat from birds raised with antibiotics important to human health.

"They're trying to get people to give them another shot," said Trip Miller, managing partner at Gullane Capital Partners, which holds 20,000 McDonald's shares.

The question is whether the change will slow down service at restaurants, which are used to cooking frozen beef patties then holding them for use as needed, Miller said.

Diners "say they want fresh and healthier, but they want it faster than ever," he said.

Morningstar analyst R.J. Hottovy said the move to fresh beef could lift sales, although likely not to the degree associated with all-day breakfast after its debut in late 2015.

"I don't think it will move the needle like all-day breakfast did," said Hottovy, who noted that the switch also will require restaurants to train workers how to safely handle fresh meat.

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Wendy's teased its bigger rival with a Twitter message reading: "@McDonald's So you'll still use frozen beef in MOST of your burgers in ALL of your restaurants? Asking for a friend."

McDonald's said it tested the new Quarter Pounders in about 400 restaurants in the Dallas-Fort Worth area and in Tulsa, Oklahoma.

John Nalivka, president of meat consultancy Sterling Marketing, said there is not yet enough information on the quantity and cost of the fresh beef McDonald's would be buying to know how that could affect the beef market or the company's margins.

(Reporting by Jessica Kuruthukulangara and Sruthi Ramakrishnan in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Bernadette Baum and Andrew Hay)

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