McDonald’s, rivals see diminishing appeal for kids meals

April 19, 2012

Purchases of children’s fast-food meals falling off as dollar menus undercut pricing, accompanying toys tank

By Emily Bryson York, Chicago Tribune reporter, 8:29 PM CDT, April 10, 2012

Julie Oelling’s 6-year-old daughter Zoe started asking to go to McDonald’s for Happy Meal toys when she started preschool two years ago.

“When she was 4, it was kind of a big thing to do, but when she turned 5, it tapered off,” Oelling said, adding that it’s been about six months since her daughter’s last request. “I’d even say she’s starting to outgrow it now depending on what the toy is.”

Long portrayed as a key contributor to childhood obesity, fast-food kids meals may be losing their appeal to youngsters — and, more importantly, their parents. The emergence of dollar menus among restaurants have given price-conscious parents a powerful incentive to choose an a la carte burger or fries rather than ponying up nearly $4 for a kids meal.

Industry observers also say the toys served up with every meal aren’t capturing older kids’ attention, while others add that children are simply aging out of the meals earlier as they’re becoming more technologically savvy.

According to the NPD Group, visits to fast-food restaurants in which kids meals were purchased have declined every year since 2007, falling 5 percent in 2011 from the prior year.

“I don’t know if there’s a silver bullet here, or a smoking gun that would indicate” why it’s happening, said a McDonald’s franchisee. “I think there’s a combination of factors at play.”

“It’s something we’d love to reverse,” he said.

Fast-food kids meals have been subject to intense scrutiny in recent years. Activist groups have zeroed in on the products and accompanying toy, saying they introduce children to a lifetime of unhealthy eating. San Francisco and a number of other cities have enacted regulations for nutritional content of fast-food kids meals when toys accompany them. Regulations vary by city.

While McDonald’s is the largest player in fast food by far, most major chains, including Wendy’s, Burger King and Subway, offer kids meals. Burger King declined to comment for this story, and Wendy’s did not respond to requests for comment.

In a statement, McDonald’s spokeswoman Danya Proud said the chain is “seeing behavior shift slightly among what is being ordered” for children, “because families are eating differently than they used to when they go out.”

“Kids are curious and may share items with their parents, or they still stick to their favorite Happy Meal,” she said, adding that “Family visits to McDonald’s remain strong and slightly higher than the rest of the industry.”

Darren Tristano, executive vice president of Technomic, a Chicago-based food industry consulting firm, estimated that McDonald’s has the biggest share of kids meal sales in the fast-food industry, as much as 25 percent of the total. He doubts McDonald’s Happy Meal sales have been declining.

“I would put it flat at worst,” he said. But with the rest of the chain’s business soaring, a major product line stuck in a holding pattern would be struggling by comparison.

The Oak Brook-based burger giant is riding nearly nine years of global same-store sales gains. During 2011, McDonald’s total U.S. sales increased 5 percent to $8.5 billion. By comparison, total quick-service industry sales rose 2 percent in 2011 to $240 billion, according to NPD.

Happy Meal sales account for about 10 percent of McDonald’s U.S. sales, the company said, but the meal, and toys in particular, have been an important vehicle to get kids and their parents to eat at the Golden Arches. Higher incidence of family meals at fast-food restaurants tends to boost the average check, an important metric of success in the restaurant industry.

“They’re very important if you think about the roots of what (McDonald’s Corp. founder) Ray Kroc was trying to do: Create an environment where families could have a meal at an appropriate price,” Tristano said.

One executive familiar with McDonald’s business said that Happy Meals have been losing older children for at least a decade.

“First it was around 11 or 12, then it went from 10 to 11, then 9 and now anytime after 8 years old, kids aren’t satisfied with the Happy Meal offering,” the executive said, adding that was a reason the company introduced the “Mighty Kids” Happy Meal, with larger entrees like double cheeseburgers and six-piece chicken nuggets, in 2001.

Toys have been a big problem in retaining older children, the executive said, adding that they expect more, thanks to increased exposure to technology.

Others, like former McDonald’s franchisee Irwin Kruger, said the shift is “probably more correlated with education and income, or people who have a stronger sense of the importance of a balanced meal. But you have to throw in the cost of cheaper food on the dollar menu.”

Bonnie Riggs, NPD restaurant industry analyst, agreed, noting that mothers have “probably switched to the value menu because it was cheaper than the kids meal.”

Parents who order a sandwich, fries and a drink from the dollar menu would likely have paid $3 until the end of March, compared with $3.39 to $4.49 for a Happy Meal at a downtown McDonald’s. Prices may vary by region.

Recent changes at the fast-food giant, which created an “Extra Value Menu,” have made such pairings more expensive. A four-piece order of chicken nuggets, small fries and chocolate milk cost $3.78 in downtown Chicago, compared with $3.89 for the most similar kids meal combination.

“I think there’s a lot to the idea of ‘Let’s buy a big hamburger and cut it in half to share’ because of the economic situation,” said Barry Klein, a former McDonald’s advertising executive who now works as a marketing consultant. He added that the 20-piece order of chicken nuggets, now offered on the Extra Value Menu for less than $5, would be ideal for a family to share.

Some parents move away from kids meals just to get more food.

Vandana Sharma, mother to sons Varun, 11, and Aayush, 8, said she stopped buying Happy Meals two years ago in favor of a la carte burgers and fries. A small fry is 2.5 ounces, compared with a 1-ounce portion in a kids meal, which also comes with a small side of apple slices.

“Before, they were only interested in the toy,” she said, adding that the meal went straight into the trash. “Now at least they’re eating.”

Freelance writer Cheryl V. Jackson contributed.

eyork@tribune.com

Twitter @emilyyork

Copyright © 2012, Chicago Tribune


Burger King Dusts Off Crown And Goes Public Again

April 19, 2012

by The Associated Press

NEW YORK April 4, 2012, 09:01 am ET

NEW YORK (AP) — Burger King is dusting off its crown and going public again.

The world’s No. 2 hamburger chain, which is in the midst of overhauling its menu and stores, says it expects to relist its shares on the New York Stock Exchange within the next three months.

In a deal announced late Tuesday, the New York-based investment firm 3G Capital said it is selling a 29 percent stake in Burger King for $1.4 billion in cash to Justice Holdings Ltd., a London-based shell specifically set up to invest in another company. 3G Capital will keep the remaining 71 percent.

Justice Holding’s shares will suspend trading on the London Stock Exchange once the deal is complete. It will then emerge as Burger King Worldwide Inc. and its shares will be traded on the New York Stock Exchange.

Burger King traded under “BKC” between 2006 and 2010 but its new ticker has not yet been determined.

The announcement comes just a day after Burger King launched a star-studded TV ad campaign to tout the biggest revamp since the chain opened its doors in 1954.

The overhaul started last year shortly after 3G Capital took the reins at the Miami-based fast food chain and assessed the ailing business from top to bottom. Executives decided to abandon Burger King’s outdated strategy of courting young men with calorie-packed monstrosities like the Enormous Omelet and the Burger King Stacker and instead play to a much broader audience.

Among the items launched Monday were coffee frappes, fruit smoothies, specialty salads and snack wraps. The additions mimic many of the popular rollouts in recent years by McDonald’s Corp., which has solidified its position as the nation’s No. 1 fast food chain by recasting itself as a hip, healthy place to eat.

Daniel Schwartz, Burger King’s chief financial officer, said the company’s growth strategy will not change and that Burger King will continue to focus on strengthening its brand at home and abroad. He said there will be no changes to the senior leadership as a result of the company going public.

“We believe that Burger King’s aggressive plans for international growth will benefit from its visibility as a NYSE-listed public company,” said Nicolas Berggruen, one of Justice Holding’s founders.

The deal is just the latest change for Burger King, which has undergone a series of owners over the years. In 1967, The Pillsbury Co. bought it for $18 million; then in 1988 Grand Metropolitan PLC bought Pillsbury for $5.79 billion.

About a decade later, Grand Metropolitan merged with Guinness to create a new company called Diageo PLC. That company announced its plans to spin off Burger King in 2000.

Two years later, an equity group comprised of Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners, purchased Burger King for $1.5 billion. The group took Burger King public in 2006 before it was bought by 3G Capital and taken private in 2010.

Darren Tristano, an analyst with food industry researcher Technomic Inc., has said that part of McDonald’s success has stemmed from the company’s steady leadership over the years, while Burger King has likely suffered from the constant changing of hands.

Justice Holdings, the latest stakeholders, completed its initial public offering just 14 months ago with the objective to invest in a company.

Among Justice’s founders are William Ackman, an activist investor and founder of Pershing Square Capital Management; Martin Franklin, founder and executive chairman of consumer products company Jarden Corp.; Alan Parker, former CEO of Whitbread PLC, the United Kingdom’s largest hotel and restaurant company; and investor Berggruen.

In a statement issued by Burger King, Berggruen said that Justice considered several investment opportunities before settling on Burger King. He said the fast food chain stood out because of its position in the restaurant industry and its “strong heritage and an aggressive transformation underway” in North America.

The unusual structure of the deal gives the Burger King’s owners, 3G Capital, instant access to cash, said Francis Gaskins, president of the research site IPOdesktop.com.

“They didn’t have to go through the time-consuming process of doing an IPO,” he said. Justice is already publically held and will simply move the trading of its shares to the New York Stock Exchange, he noted.

As part of the deal, Franklin and Parker will join Burger King’s board when the deal closes.

Investment funds managed by Pershing Square will own about 10 percent of the company’s outstanding shares, which they will receive as a result of their stake in Justice.

Follow Candice Choi at www.twitter.com/candicechoi


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