McDonald's vs The Burger Revolution | The Price is Right | 2

0:08It's early 2016 in the office of a marketing agency called Creata. The agency's been tasked with making a Happy Meal toy that would be featured at McDonald's for four weeks in the summer. It needs to be unique and exciting. For many of us, when we think back to the Happy Meal toys of our own childhood, we think of figurines tied to famous IP or movie releases, things like plastic Garfields or Little Mermaid characters. But this time around, McDonald's is trying to create something entirely new. At the front of the room, someone jots down a few keywords on a whiteboard. Apps, technology, healthy.

0:51Last year, McDonald's launched its first mobile app, and Creata wants its toy to get kids and their parents excited about that emerging technology. But the bigger task is this. The toy should remind parents that Happy Meals can be part of a healthy, balanced lifestyle for kids. For the past decade, McDonald's has suffered as Americans increasingly demand quality, healthy food. So the company's been trying to switch up their Happy Meals to address this. In 2014, they added low-fat yogurt as an option for Happy Meal sides. And now they want this new toy to make more people associate McDonald's with good eating, healthy eating.

1:34One of the Creator employees has an idea. Hey, what if we made a wearable step counter? You mean like a Fitbit? Yeah, like a colorful watch kids could wear. It would actually count steps, encouraging kids to be more active. Everyone in the room nods. It's perfect. Fitbits are all the rage in the 2010s, so kids and parents will both be excited about it. And it combines everything McDonald's wants to highlight. A commitment to making children healthier and a move in a modern, more tech-based direction. Come August, the Step It is available in Happy Meals across the U.S. and Canada, bolstered by a massive ad campaign.

2:16At McDonald's, you can have fun with your food and have fun with Steps with the Step It activity band in your McDonald's Happy Meal. The idea seems like a win. McDonald's has had a bad year with slumping revenues and needs the boost. But soon enough, the step it will only create more bad press, coming back to burn McDonald's public image, and in some cases, to literally burn the children who end up wearing it. Step it? More like step in it. It's another misfire in McDonald's effort to win back customers. And as McDonald's fumbles, it seems like the better burger businesses just keep on growing.

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4:39From Wondery, I'm David Brown And this is Business Wars

5:09In our last episode, we watched as the better burger industry started booming throughout the U.S. and expanding worldwide with Five Guys and Shake Shack leading the pack. But fast-casual restaurants had been on the rise since the 90s. You know, places like Chipotle, Sweetgreen, and Cava. And though it's still a small segment of the overall food service business, the fast-casual category is rapidly expanding. It's now worth an estimated$34 billion in the U.S. alone. Hey, you remember how fast-casual chains were part of the demise of Red Lobster? Well, by 2016, fast-casual burgers are taking a real bite out of the fast food industry.

5:54McDonald's has to fight to draw back increasingly health and ingredient-conscious customers. Meanwhile, Shake Shack and Five Guys compete for space in an expanding market and work to hold on to customers who are beginning to get turned off by their bloated prices. This is Episode 2, The Price is Right.

6:21It's March 16, 2016 in West Hollywood. It's a hot day, but that's not stopping customers from standing in line outside to get a taste of the newest burger on the block. Today, California is getting its first Shake Shack. Founder Danny Meyer and CEO Randy Garuti are both here for the opening. They smile as they cut the ribbon out front for a cheering crowd. The L.A. menu will have a few exclusive items like the Roadside Double, their take on L.A.'s famous French dip sandwich. With just 86 locations, Shake Shack's still a relatively small business compared to Five Guys, but it's become famous worldwide.

7:03The press is quick to point out that while an American burger chain opening in L.A. seems innocuous enough, this is actually a pretty gutsy move. Southern California's firmly been in-and-out country. In-N-Out has dominated California since 1948 and has over 300 stores across six western states. It's got a cult following and is known for its simple menu of burgers, fries, and shakes that are never frozen and made to order. The arrival of Shake Shack signals that the burger wars are sizzling and they'll have to keep encroaching on each other's turf, both in the U.S. and abroad.

7:46It's March 21, 2016, just a week after Shake Shack arrived in L.A. Three years ago, Shake Shack and Five Guys both opened their first European locations within 24 hours of each other in the same London neighborhood. That kicked off what the media called the British Burger War. But today, Five Guys is the clear winner in the region. The once small family business with its humble Virginia roots is expanding aggressively into Europe. And while Shake Shack hasn't continued to expand in the UK beyond their one location in London, Five Guys now has 41 locations there and a whopping 1 ,400 stores worldwide.

8:30Now, before we go much further, there's a point to be made about something I know longtime Business Wars listeners may be thinking. That much-talked-about first-mover advantage. You know, the company that's first to the market with its service or product. Well, sometimes it's not all it's cracked up to be. Five guys in Shake Shack landed in London on the same weekend, but only one stuck the landing. Timing matters, but so does execution. In a new market, the winner isn't always the first through the door. It's the one that adapts fastest once they're inside. Of course, Five Guys has a whole lot more practice and confidence, and it's about to get another ego boost.

9:13And that's because today marks another milestone win on the British battlefront. Five Guys gets named Britain's favorite fast food joint in a survey, overtaking Nando's, a popular South African fast casual chain. It also beats out chains like Burger King and KFC. This win proves that, at least across the pond, the classic American burger chain is a potent threat to the OG brands. But those companies are prepared to up their game.

9:51It's August 13, 2016 in Arkansas. After months of careful planning by McDonald's and the CREATA marketing agency, the chain has finally launched its newest Happy Meal toy, the Step It Fitness Watch. In McDonald's eyes, the timing couldn't be better, with the Summer Olympics happening and families excited about staying active. Casey Collier and her young son, Kacen, are at home after a trip to McDonald's. Kacen's running around the living room with the bright yellow steppet from his Happy Meal. As he paces up and down the room, he excitedly watches the number go up on the plastic watch, counting his steps.

10:31But within a few minutes, Kacen starts crying. When Casey looks over, she sees that the watch has left a round burn on her son's wrist after just a few minutes of wear. She posts about it on Facebook and soon enough finds out this isn't an isolated incident. To keep children safe and limit the spread of this PR nightmare, McDonald's has to act fast. McDonald's said last week it would stop distributing the Step It Fitness bands and Happy Meals, and now it's recalling 29 million of them in the U.S. and 3.6 million in Canada. The Consumer Product Safety Commission says the company received numerous reports of incidents after children wore the bands, including seven.

11:14McDonald's doesn't say what caused the burns, but consumers point to the battery, the casing, or the light mechanism as possible explanations. Within a week of the step it's launched, the product gets recalled and pulled from restaurants as more parents report their kids have been burned by it. But the damage is done. The Step It becomes a laughingstock, with media outlets tearing McDonald's apart. Adding fuel to the fire is the fact that the Step It doesn't really seem to work at all, with the number of steps it counts going up arbitrarily. One journalist jokingly reviews the product with a headline, It was free, but it was terrible.

11:56And as the media has a field day, McDonald's stock slumps even further.

12:09It's May 17, 2017 at the Martinique Hotel in Times Square. App developers are gathered here for the Appy Awards, which celebrate the best new apps and mobile technology created by businesses. A small team of developers holds their breath as the winner for the food and beverage category gets announced. A few months back, Shake Shack joined the growing number of restaurants with apps, allowing customers to order from home and skip the long lines that have plagued the business since its inception. The app has been a huge success, and tonight reaffirms it. Shake Shack gets announced as the category's winner.

12:48It's a well-needed win for the shack. Same-store sales have slowed, causing the company's stock to slip. The app is also long overdue. Five guys launched their own app way back in 2011. Shake Shack hopes that with new tech, they'll be able to beat slumping sales. And as Shake Shack tries to win over customers with their app, McDonald's is also fighting to keep up with the times and change the narrative after its Step It debacle. Though McDonald's still dominates the burger market, it's reducing its number of U.S. stores and still toying with menu changes in an attempt to win back customers. To meet rising demands for quality and freshness, in early 2018, it announces that quarter pounders will now be made with fresh beef rather than frozen.

13:41Other cooking tweaks have also been made to improve taste, like toasting burger buns and new menu items with ingredients like kale. A few months later, in August of 2018, the chain announces a plan to spend$6 billion on nationwide store makeovers to modernize most of its restaurants by 2020. But with a pandemic looming, out-of-style stores will soon be the least of anyone's worries.

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17:06It's April 2020. Like many other restaurant chains, Shake Shack has been hit hard by the pandemic. Part of the issue is that the majority of Shake Shack's locations are in high-density urban areas rather than suburban or rural ones. And business has been especially slow in cities, where people are being particularly cautious. Shake Shack is adapting as best it can, however. They've had to temporarily close almost a third of their locations, with those staying open now focusing solely on curbside pickup and delivery. They've even launched an initiative that allows people to buy the ingredients to cook their own Shake Shack burgers at home.

17:46Still, March 2020 numbers fell 28.5 % compared with the previous year. Average sales sink down to$56 ,000 per week, down from the$70 ,000 pre-pandemic. But while Shake Shack is working hard to weather the pandemic, today, they're also weathering a media storm of criticism. Shake Shack has had to re-evaluate its workforce. To keep costs down, they just laid off or furloughed over 1 ,000 employees. It probably wouldn't be such a bad look if not for the fact that they just received a$10 million PPP loan. PPP stands for Paycheck Protection Program. It's an initiative intended to help small businesses stay afloat during the pandemic.

18:38Wait a minute. Shake Shack? Small business? Shake Shack is an international chain with 8 ,000 employees and 189 locations in the U.S. So in the eyes of most consumers, it's not exactly the kind of business this loan was even intended for. Facing backlash, Randy Garuti and Danny Meyer release a joint statement announcing they're returning the PPP money immediately, so it can go toward smaller businesses that need it more. They go on a little press tour explaining their decision. They've skirted this PR disaster. But they'll still need to keep adapting to survive the pandemic. Now let this be a lesson in PR judo.

19:24If you're about to get hit, lean into the punch. Shake Shack's quick refund of PPP money wasn't just damage control, it was reputation insurance. They got bruised, that's for sure. But they didn't go down. The takeaway? Own the mistake before it owns you.

19:49It's September 24th, 2020 in Myrtle Beach, and a new Five Guys is opening up. Now, there are already a handful in the area, but this is a significant one for the chain. Five Guys now has over 1 ,500 locations throughout the world, but this is the first one with a drive-thru, which seems shocking when you think about how central drive-thrus are for most fast food businesses. The pandemic has fundamentally changed the way fast casual restaurants are operating, making them lean heavily on online ordering systems and new technology. And while Five Guys has spent 34 years without ever operating a drive-thru, the pandemic is pushing them to try new business models.

20:35Now, customers will be able to order online through the app before arriving and pick up their food at the window for a safe, almost contact-free experience. And throughout the next few years, Five Guys will keep opening more drive-thrus across the country. In late 2021, a year and a half after Five Guys opens its first ever drive-thru, Shake Shack follows suit. In Maple Grove, Minnesota, they open their 364th location, spurred by a pandemic-linked commitment to safety and a need to keep up with the times. They intend for this to be the first of many drive-thrus as part of a push to keep growing outside of major cities.

21:18So far in its expansion, the company is largely focused on urban locations. But the pandemic made it clear that it's worth trying to grow in suburban markets, too. Shake Shack hopes that drive-thrus can help them bring in more customers in the suburbs, where foot traffic is less of a factor than in urban centers.

21:40It's June 7th, 2022. It's been a tough year for Shake Shack, with the company's stock steadily declining since early 2021. But now, it's about to plummet. Since first launching Burgers in 2004, Shake Shack has used Pennsylvania-based Martin's Potato Rolls. But last week, it was revealed that the Martin family is among the top financial supporters for Doug Mastriano, a Trump-backed Republican in the Pennsylvania State Senate, often described as a Christian nationalist. Mastriano is being investigated for his potential involvement in the events of January 6th. All of this has led to calls for Shake Shack to switch up their bun supplier.

22:23And today, they've officially announced they're not going to, in a statement many feel disappointed by. Shake Shack holds firm, maintaining their commitment to Martin's. Calls spread to boycott the chain. Shake Shack's stock ends up dropping to the lowest point it's been in two years since the start of the pandemic, tumbling to$39 a share. And internally, investors are about to decide it's time for a change in leadership. While Shake Shack stumbles and Five Guys fights to adapt to the pandemic, McDonald's is on the up and up. That chain has rebounded remarkably well in 2022, with 10 % growth and a 5 % increase in guests globally.

23:13And it seems like cost is likely a big part of that. As the pandemic has made more people frugal, Shake Shack and Five Guys are facing criticisms for the sky-high prices that come with their quality ingredients. It's become harder to justify spending upwards of$8 on a burger, especially when those costs keep rising with inflation. At the end of the day, when it comes to pricing, better burgers just can't compete with the Golden Arches. That's likely why, after years of fumbles, McDonald's seems to be making a comeback.

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