Name: Shake Shack vs. McDonald’s: The tale of two burgers
Uploaded: 2015-01-30
Duration: 4 min
Description: Leigh Gallagher, Phil Wahba and Andrew Nusca discuss the shakeup at McDonald’s and the Shake Shack IPO.

[ MUSIC ] Huge if not entirely unexpected news from McDonald's. Don Thompson had been there for two years and all of that time was basically pretty bad. What happened here? So, you know, after an amazing run by his predecessor, Skinner. A lot of the problems that have been brewing for years finally came to the fore and sales started declining. And then you had five quarters in a row of, of negative sales in the United States. Which is still their biggest market. Essentially what has happened is that they allowed the menu to get too bloated, they started, McDonald's started chasing too many rabbits and trying to get to fancy and with the McCafe. Yeah, they had egg, McEgg Whites and, and McRibs and a pomegranate smoothie at some point. Four iterations of, of the, of the, the Quarter Pounder. And so what that ended up doing was slowing down service because, you know, cooks in the kitchen were getting in each other's way. So it slowed down service and annoyed the customers. And it, it also, it made it difficult for, for the, for the workers to learn how to make all that food. So. When, what franchisees want the company to do, and they made is clear that they were not happy with Thompson, was that they want a simpler menu and for McDonald's to focus on what they traditionally have owned, which is burgers and fries. But also, part of the problem is it was doing all this menu expansion, but they weren't hitting the mark with. Where the culture is headed, which is sort of healthy, fresher food. They really haven't really grasped that. And, and isn't that also part of the problem? Well, I mean look at how well Chipotle has done. Exactly, surging. And Panera, and. And actually Chipotle's burritos have more calories than a Quarter Pounder. But, I mean that, that actually embodies one of the problems McDonald's has. Is that. They have developed a reputation for poor quality that they've never been able to counter, and so it's sort of festered and grew on itself. And then essentially, its, its big middle- class customer base evaporated. And then we have a crowded market, Andrew. There's this sort of better burger market, which is this new kind of upscale category where you've got Umami Burger, Smash Burger, Five Guys. Right. And of course, today, Shake Shack, which is a huge IPO that went out of the gate today. So. How much of a, a factor is the, the competition in the market? It's huge. I mean, we were just talking about how bad you know McDonald's food is for you and how bad Chipotle food is for you. If you get a meal at Shake Shack, you can have your. Your whole day's calories is one go. That's true. It's not like Shake Shack is healthy. Yeah. I mean if you have one of those meals you're straight into a food coma. No lie. So the, the, it's very interesting how this is a perceptionist issue. I remember when Shake Shack started coming up. You know, people went there cuz God the burgers are really good. They really taste good. The fries were perfect. When Shake Shack tried to switch its fries to a more conventional style, everybody revolted. Huge eruption, yeah. Yeah. I mean, they really just made their name on we're gonna do burgers really right, and you're gonna pay for it. And that's what, they're right. They struck some sort of cult chord, though. Yeah. Because this is a brand that's hugely popular with millennials, which McDonald's has not gotten right. And, you know, people line up for this. Danny Meyer started it as a, as a hot dog cart as an experiment. And it has just exploded. So I guess the question is can they continue that growth? I mean that, that's fine when you're just a few locations. But the plan here is to raise all this money and then go out and expand to 60, 70 locations. Does this risk lack, you know, losing these kind of. You know, authenticity that made it so cool. It kind of does. I mean, with McDonald's on its heels you know, Shake Shack is in a great position. It's gonna keep expanding, because people do want you know, the better burger. But, yeah I mean, if they're on every corner, they might, maybe they'll lose some of the allure. Well they're, they're aiming for 450 restaurants, eventually in the United States- That's huge. From 70. Okay, 70 [ INAUDIBLE ]. But you know, it's it's. For now though, this week the NPD put out burger, hamburger statistics that showed really what's wrong, 9 billion hamburgers were served in 2014 in the United States and yet McDonald's sales declined. So those burgers are being served somewhere. Fortune Live.

Leigh Gallagher, Phil Wahba and Andrew Nusca discuss the shakeup at McDonald’s and the Shake Shack IPO.