McDonald's revisits pizza with new Happy Meal test

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McDonald's Corp. looks to be preparing another run at the pizza category with the test of pizza-based Happy Meals.

The chain's McPizza flopped in the mid-1980s after McDonald's found it could not make the product fast or consistent enough. Then, after purchasing the Donato's pizza chain last year, company executives denied they would sell the newly acquired pizzas alongside their hamburgers.

But the lure of the $25 billion pizza category may be proving too hard to resist -- particularly for its Happy Meal franchise. Not only are kids among the biggest consumers of pizza, but pizza is most often consumed at dinnertime, the daypart McDonald's most needs to build.

The new Happy Meal has been testing in Illinois and Wisconsin stores since fall. Sold with french fries and a drink, the 4-inch cheese disks cost between $2.39 and $2.52. The tiny pies are promoted with new mini-pancake meals in local ads and in-store posters. Leo Burnett USA, Chicago, handles.

A RARE KIDS' TEST

The experiment is particularly significant because it's the first time in recent memory new kids' meals have been tested, observers said. "I can't think of the last Happy Meal product in the pipeline since Chicken McNuggets" in 1983, said Dick Adams, a franchise consultant and former McDonald's operator.

While a McDonald's spokeswoman affirmed that kid menu tests have been rare, she downplayed the significance of the current trials, saying they are being conducted in only a handful of units.

A full 30% of pizza orders are from kids under age 18, according to Harry Balzer, VP of the resarch company NPD Group, and pizza is the No. 1 food consumed at dinner, up from No. 5 in 1990. The dinner daypart now accounts for only 20% of sales at McDonald's, said Merrill Lynch analyst Peter Oakes.

Those facts certainly aren't lost on the chorus line of former Pizza Hut executives who have joined McDonald's in recent years. Alan Feldman, president of McDonald's USA, was hired away from Pizza Hut in 1994. Senior VP-Marketing Larry Zwain, who joined in 1997 from Boston Market, also had a long history at the pizza chain. Another alumnus of the Tricon Global Restaurants unit is Tom Ryan, McDonald's VP-menu development, who many consider to be the driving force behind the burger chain's pizza revival.

ADDING ADULTS

Only six in 10 kid meals sold are accompanied by adult orders, Mr. Ryan told delegates at a food processing conference last April, according to one attendee. Mr. Ryan told the conference that McDonald's has pledged to increase the odds of an adult meal purchase by introducing irresistible new fare.

"When kids come to McDonald's, that should be the biggest ticket -- a high check," said Andrew M. Barish, an analyst with BancBoston Robertson Stephens. "They rested on their laurels too long and now have to catch up with everyone else by evolving the menu."

The new meals are the linchpin of a multilayered strategy to resuscitate flagging adult orders, according to executives close to the company. Equipped with new kitchens and counsel from Chicago menu guru Richard Melman, McDonald's is rolling out a slew of new burgers and burger alternatives designed to maintain adult sales at the Golden Arches.

The Big Xtra!, McDonald's most recent adult burger introduction, is selling well, the spokeswoman said. Updated spicy chicken sandwiches and salads are slated for national introduction in April.

Meanwhile, an array of other menu expanders are in test, including McChoice -- an a la carte sandwich-topping concept -- as well as deli wraps, yogurt parfaits, breakfast bagels and even bratwurst.

Not overlooking older kids, the fast-feeder also is experimenting in two unidentified test markets with larger-size kid meals designed to keep teens loyal.

"If all these things work, there will be less reason [for adults] not to go there," said Patrick Schumann, a restaurant analyst for Edward D. Jones & Co. He said the broader menu provides a new selection of products to those who otherwise wouldn't choose McDonald's.

PRODUCT, NOT PROMOTION

"Using product as opposed to promotions to draw new customers is a very sound strategy," said Bob Goldin, exec VP of restaurant consultant Technomic. "The more you can get into the hearts and minds of children, the more likely you are to get adults into the unit. Promotional items and menu additions can only enhance adult transactions."

Amid recent new-product failures from McDonald's, others question whether the strategy will work. "You face tremendous operational challenges when you change your entire philosophy and culture," said Kim Miller, spokeswoman for archrival Burger King Corp. "It's logical to assume that quality and speed of service will decline."

Operational issues, in fact, played a major role in McPizza's demise, Mr. Adams said.

"The problem with the McPizzas was you couldn't make them fast enough. How will these new pizzas be different?" Indeed, two different drive-through lines in the Wisconsin test markets this month were delayed several minutes during the lunch rush while pizzas finish baking.

Whether for kids or adults, however, Mr. Adams wondered whether the new menu items might be too little, too late.

"McDonald's hasn't had a bona fide new product hit since Chicken McNuggets," he said.

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