McDonald's has tried many ways to goose sales and improve popularity, whether the 1-2-3 dollar menu return or doughnut sticks. Now there's another bid: a plan to introduce Beyond Meat plant-based burgers.
According to reports, the fast food chain will test this in 28 locations in Ontario. They're calling the sandwich the P.L.T., for plant-lettuce-and tomato.
The company really needs a new hit. It's hard to keep growing when you're massive but constant growth is what investors seem to demand virtually everywhere. And it's an interesting experiment--something that all businesses need to try, as entrepreneurs should know.
Beyond Meat shares jumped almost 11.6% during the day, but were down 1.5% in after hours. And McDonald's shares? Flat. There's a big story to understand in that difference.
As experiments go, this one was pretty obvious. McDonald's former CEO sits on the Beyond Meat board--big connection--and rival Burger King started experimenting with Beyond Meat burgers in the St. Louis area back in early summer. Given market expectation, it was hard for McDonald's not to give it a try, if only to satisfy investor expectations and look as though it was doing something that might lead to an improvement in results.
Difference in scale
Beyond Meat is tiny compared to McDonald's, so the impact on it was going to be bigger. More importantly, though, being small means still lacking the scale to satisfy the full need of large organizations. It would take a massive investment in facilities to provide meat substitutes at a volume that could satisfy McDonald's across the chain.
Success is far from proven
The introduction of Beyond Meat to a food service business is far from a guarantee of success. I've spoken with organizations that tried it and ultimately dropped the product. Tim Horton's significantly scaled back the use of Beyond Meat within a few months of the introduction. Even billed as a limited time offer, it does suggest that customer demand might not be strong enough.
It's not just an issue of customer demand that is an issue, but cost. According to what some in the business told me back in June 2019, the Impossible Meat product was three times as expensive as ground beef. It's a huge expense increase for an industry where food costs are a major drag on profitability, or even business sustainability. Increased scale will help reduce the cost, but it's going to take a lot to match the price advantage that ubiquity like that of ground beef can offer.
Other cost issues
Raw material expense is one big issue, of course. But there are others, like distribution. Without a network of production facilities, Beyond has to ship perishable product from one of two different production facilities and while they're already servicing a number of chains with multiple products, I don't think any of it has been organization-wide. There's an expense in the lack of production muscle and focus for McDonald's
There's also the issue of how McDonald's cooks burgers in its existing setups. Handling Beyond Meat has taken additional training for chefs. How well can it exist in a current McDonald's location layout? Changes in basic procedures mean expense.
Real or a fad?
Finally, there's the question of whether Beyond is here to stay. It has lots of competitors, including, now, food product giant Tyson, to say nothing of other niche producers like Impossible Foods or Dr. Praeger's.
Popular taste is a funny and fickle thing. So, expect that this really is an experiment for McDonald's--in part to nod to something getting a lot of buzz, but also to see whether any type of meatless burger would work for it. Even if the answer is yes, the choice may not be Beyond.