Chicken Wings To The Rescue?
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In late 2012, Dow-30 component McDonald's (NYSE: MCD) reported that comparable store sales declined for the first time in nearly a decade. The market didn't take kindly to the news. What has the company done about it, however, is the real question to ask. First off it went back to basics, second, and more importantly, it continues to innovate. The most recent effort? Chicken wings! But will chicken wings really save the day?
After spending some time lost in the wilderness, McDonald's got its stride back about the same time its growth trend in comparable store sales took hold. It proceeded to go on a streak of industry domination that has been nothing short of impressive, built largely on product innovation. However, trends like this can't go on forever. Management eventually misses the mark.
A global economic meltdown, followed by a weak recovery, was one stumbling block. Resurgent competition from the likes of Yum Brands (NYSE: YUM), which owns such fast food icons as KFC, Pizza Hut, and Taco Bell, and a newly christened Burger King (BKW), back as a public company after yet another restructuring attempt, was another. And, new fast food concepts that offer slightly higher quality fare, like Chipotle Mexican Grill (CMG), giving consumers a totally new food option, was a third.
Not a Leader for Nothing
That said, McDonald's isn't an industry leader for nothing. It seems to be getting back on track with its same store sales results. However, a key change it plans to make is to start offering more limited time specialty items. This will likely mean more test products that may or may not make sense at a fast food burger joint.
However, product innovation has been a key to the company's success and testing is an integral part of new product development. A test of chicken wings that has expanded from Atlanta to Chicago gives a hint at what might be on the menu at the local McDonald's soon.
Chicken wings are an increasingly popular food option. Yum brands, which has incorporated Wing Street into many of its Pizza Hut locations, is one such example of a fast food giant trying to expand into this space. And, of course, KFC has wings. Then there is the wildly popular Buffalo Wild Wings (NASDAQ: BWLD). The shares of this company, which, as its name implies, specializes in wings, have been on an upward climb for years.
That said, it makes more sense for each of these players to have wings than McDonald's. Pizza Hut is largely a sit down establishment, making normally messy wings easier to eat. KFC is a chicken place, so wings fit logically. Moreover, fried chicken is messy so most customers wouldn't find similarly messy chicken wings an odd food choice. Buffalo Wild Wings' success, however, is more likely a result of its atmosphere than a direct result of its food options. Indeed, more sports bar than restaurant, it is filled with huge televisions and families looking for a night out without breaking the weekly budget.
None of the above will be true of McDonald's. In fact, with a large take-out business, there are some valid concerns that wings won't sell well at all. Indeed, it's hard to eat messy wings and drive at the same time.
Will they Fly?
So McDonald's isn't a first mover here. In fact, according to some reports, it isn't even the first time McDonald's has tried out chicken wings. If the wings didn't take off last time, maybe this time will be different. Or maybe not. However, what the wing effort shows is a company willing to invest in itself.
Taking the time to examine new ideas is vital in the fast food space. Not every new idea will work, but putting in the research to make sure is important evidence that McDonald's hasn't completely lost its way again. I, for one, would love to test out some McDonald's wings, so I hope they make into the North East.
If they don't, that doesn't make McDonald's any less desirable a company; I'm sure management will find something else to use as an enticement to customers. With the yield recently in the mid 3% range, now is a good time to invest in this industry leader, whether or not the wings fly.
ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!