It's Friday night and Mehdi Hatim and his wife, Beverly, are doing something they've never done: having a dinner date at McDonald's.
It isn't just the recession that lured the couple from nearby Vienna, Va. It's also McDonald's new Angus Third Pounder burger. At $3.99, it's the most expensive burger the chain has sold, and if the "premium" burger is a hit, it could jolt the dynamics of the $566 billion restaurant industry.
"McDonald's is so secure in its own market that now it's going after casual dining," the next level up in the restaurant business, says Hatim, a cemetery manager. Hatim has never spent this much for a fast-food burger, but he's back with his wife after trying it once. Why? "For four bucks, this is hard to beat."
Recession be damned, consumers are saying "no" to cheapo burgers. When they head to a fast-food burger joint to save money, many are spending more than ever. It's not as contradictory as it seems: The Angus premium burger can cost more than $6 as part of a Value Meal, but that's still cheaper than the $8 to $12 price of such burgers at sit-down casual dining eateries, so it feels like a bargain.
"It may be the last affordable luxury," says Christopher Muller, restaurant management professor at University of Central Florida. "It's an easy way to reward yourself without feeling you've blown the bank."
The fast-food giants are pushing premium burgers with gusto. McDonald's Angus Third Pounder, rolled out nationally this summer, is the trend's 500-pound gorilla. Earlier this year, Burger King began to install new broilers in most stores to handle meatier offerings, such as its Steakhouse XT Burger. Wendy's won't talk about it yet but plans next month to launch the Bacon Deluxe, a premium bacon cheeseburger. Jack in the Box is in the mix with Mini Sirloin Burgers.
The premium burger trend started in casual dining restaurants and continues there. Family chain Denny's in October will begin selling a premium line dubbed Better Burgers — less bun and more burger. By going more upscale as consumers are trading down, fast-food restaurants are coaxing away former casual dining customers.
Premium burgers are a path to better same-store sales growth for restaurants, says Ron Paul, president of industry consultants and researcher Technomic. "It gets folks to spend more money — without raising prices."
Maybe so. But Neil Golden, chief marketing officer at McDonald's USA, insists that padding the check is not the motive for the chain's premium burger. "It's intended to satisfy burger lovers."
In the process, he concedes, the burger has generated extra visits and gotten patrons to trade up from other McDonald's burgers, though he declined to reveal numbers.
Marketing vs. beef
At its heart, the fast-food kingpins' premium burger binge is as much about marketing as beef.
"A premium burger is any burger that a restaurant can convince you is somehow better than average," says Scott Hume, editor of the website BurgerBusiness.com.
And in some ways it capitalizes on consumer ignorance, he says. Many consumers don't have a clue what Angus is, but they know it sure sounds special.
"I doubt that the average consumer understands that Angus is a breed of cattle," says Hume. "People will buy it because fast-food chains are very good marketers. They can make Angus sound like it has a chorus of angels behind it."
To turn up the angels' volume, McDonald's billboards show luscious images of the Angus Burger next to "premium" pitches such as: "Beauty is in the hand of the beholder," or "It's good to be at the top of the food chain."
A June survey by researcher Technomic found that "premium burger" means many things to many people. About 72% of respondents said "high-quality" meat is what makes a burger premium; 71% said it's the cut of the meat, while 36% said it's the size. And 30% said it's the toppings.
Advertising "Angus" or "sirloin" seems to be having an effect, too. In the survey, 27% of consumers said they prefer to buy restaurant burgers made with Angus beef vs. 20% in 2007. And 19% said they prefer sirloin burgers vs. 13% two years ago.
The premium burger onslaught didn't come from nowhere. Just ask Five Guys, the regional cooked-to-order burger chain that has made such an art of top-quality — if not pricey — fast-food burgers that it attracted President Obama earlier this year.
CEO Jerry Murrell is concerned about the trend — but not about the competition. "If McDonald's does it right, it's good for the industry. But if they do it wrong, it's bad for the industry," says Murrell, who hopes Mickey D's doesn't give premium burgers a black eye by skimping on ingredients.
Five Guys pays a premium for its mayo, says Murrell, who recently nixed a suggestion by his purchasing agent to buy a cheaper brand. "If the guy doubled his price, we'd probably still pay it."
Carl's Jr. and Hardee's snicker that McDonald's move is late. The sister chains' nine versions of 100% Black Angus Beef Six Dollar Burgers (which actually sell for as little as about $4) have been their calling card since they first rolled out eight years ago.
Andy Puzder, CEO of CKE Restaurants, the parent to Carl's and Hardee's, asserts that by copying Carl's and selling such a pricey burger, McDonald's is only confusing its customers. "But if they want to change who they are, well, that's up to them."
Nutritionists weigh in
Beyond the price at the counter, premium burgers can have a high nutritional price tag.
The McDonald's Angus Bacon & Cheese Burger, for example, has about 790 calories with 145 mg of cholesterol and 2,070 mg of sodium. That's almost as much sodium as the 2,400 mg limit that the federal government advises for a whole day of eating. The Steakhouse XT Burger from Burger King weighs in at 970 calories, 135 mg of cholesterol and 1,930 mg of sodium.
"You should see flashing warning lights before you order this," warns Jo Ann Hattner, a nutritionist at Stanford University. "If you do order it, share it."
Hattner says, however, that she understands why consumers are turning to these hulking, premium burgers: They're comfort food. In tough times, she says, folks feel warm and fuzzy about familiar foods that both fill their tummies and calm their jitters.
Here's how three fast-food chains took burgers premium:
•McDonald's. About six years ago, McDonald's started hearing a demand for premium burgers, says Golden, the marketing chief. Two years ago, it began testing Angus beef burgers in Southern California. This summer it rolled out the Angus nationwide as a limited-time offer.
The national launch has "far exceeded our expectations," says Golden, though he declined to provide details. McDonald's U.S. same-store sales growth (for stores open at least a year) was a relatively modest 1.7% in August compared with August 2008.
While no decision has been made on whether to make the Angus burger a permanent menu item, Golden says, "If it continues as it does right now, we'll keep selling it."
•Burger King. Five years ago, the chain tried selling folks on an Angus Steak Burger, but it came precooked and tasted like it. BK yanked the product and went back to the drawing board.
Its newest premium burger, the Steakhouse XT, is not Angus beef but does come slathered with A.1. Steak Sauce, mushrooms and crispy onions for a steakhouse taste.
"This is a game-changer for us," says John Schaufelberger, senior vice president of global product marketing.
To cook the thicker burger, however, Burger King had to redesign its broiler system. Since early this year, BK has been installing the new broilers. They are in 80% of its U.S. stores now and will be in all by January, Schaufelberger says. The XT burgers will be national in 2010.
At $4.49, it's among the most-expensive-ever BK burgers. "It pushes the ceiling on what we've offered, but there's very little consumer pushback," he says. "We're catching casual dining (customers) trading down."
•Jack in the Box. Like the other fast foodies, Jack in the Box was influenced by seeing the success casual dining chains like Applebee's and Ruby Tuesday were having with premium burgers.
After all, says Tammy Bailey, new products chief at Jack in the Box, casual dining restaurants typically set trends that fast-food chains follow, adding a fast-food spin of greater convenience and lower price. The chain started testing premium burgers in 2006 and by 2007 rolled out Sirloin Burgers, made with 100% sirloin beef, a cut from the lower portion of the ribs. In March, it rolled out Mini Sirloin Burgers — a pack of three for up to $3.99. Bailey says they've helped boost the chain's check averages.
Sticking to low prices
Still, not everyone is tempted to indulge at these prices.
Sam Eckles, a Chicago retiree, says he won't buy premium burgers from anyone. Not even McDonald's. "I'd like to, but they cost too much."
Instead, four times a week, he goes to a nearby McDonald's and orders a $1.65 Snack Wrap. He places two, one-dollar bills on the counter and gets something comforting besides his lunch.