ArticlesI am about to reveal one of the hidden secrets of the Australian culture; something that disturbs and haunts visitors forever, and yet the locals consider normal – they have been indoctrinated as children.
Australians serve beetroot on their hamburgers. The beetroot is served cold and it is pickled.
Some people may find this quite confronting. I beg you to come to terms with it before you proceed.
The rest of this article talks about the McDonald’s Corporation.
Some people may find this quite confronting. I beg you to come to terms with it before you proceed.
McDonald’s sells hamburgers in Australia following the American style – and thus they do not normally contain beetroot.
They do make some concessions for the local culture. For example, they never refer to hamburgers as “sandwiches” in Australia. Most Australians do not consider a hamburger to be a sandwich, although it would probably be challenging to produce a definition that didn’t include them.
In 1998, as a short-term promotion, McDonald’s tried out the McOz – a hamburger that included beetroot and grilled onions. As a promotion, it was a huge success, and sold well.
At the end of the promotion, they took it off the menu and returned to their normal fare.
In 1999, I heard a radio interview of a McDonald’s employee. The interviewer was a big fan of the McOz, and was demanding answers for why the McOz had been taken off the menu when it was clearly so popular.
The answer given was supply problems. The McDonald’s employee claimed that McDonald’s sold so many McOz burgers that they would need more than the entire beetroot crop of Australia. They just couldn’t get enough beetroot, so they couldn’t sell the burger.
This got me thinking.
My first thoughts were along the lines of “Wow! That’s a lot of beetroot! What a problem to have!”
My second thoughts were along the lines of “Really? That’s a lot of beetroot! Is this story true? I wonder how much beetroot McDonald’s would need, and how much spare capacity was available from the local beetroot crop.” (I never did the research to check this.)
Then I realised that the free market has a perfectly good way to balance supply and demand, and it isn’t by withdrawing your product from the market. It’s by raising the price. Charge $10 per burger, $20 per burger, whatever the amount is that brings down demand to match the supply. When demand outweighs supply, you don’t withdraw – you go full steam ahead, and make bucket loads of money.
That got me thinking further. Imagine if beetroot was everything that the radio interviewer seemed to think it was – a delicacy that played a pivotal role in defining the hamburger, the meal, the whole eating-out experience. Imagine if people really liked it. I mean, really, really liked it. Imagine if the supply was so small and the demand was so high, McDonald’s could successfully sell hamburgers containing beetroot for $50 each, for a giant markup.
Here’s my big question: Could McDonald’s afford to charge that much for a hamburger?
For example, would that change the clientele? Would they lose their young customer base, in return for a more yuppie crowd? Would the new clientele demand better seating, nicer lighting, quieter atmosphere and a liquor license? Would they reject the idea of drinking from a paper cup and having the gourmet meal stuffed into the bottom of a paper bag?
Would it require a change in their security procedures? They can afford a certain amount of loss due to staff giving away cheap or free meals to their mates. Could they continue to afford that if the meals costs over $50 each? Would they need to introduce more security? Hire more experienced people?
Maybe McDonald’s is not in a position to play in the upper end of the market, even if the mark-ups were that high.
I don’t know the answer here, I just find it an interesting idea to ponder.
Coda: In 2000, the following year, McDonald’s brought back the McOz and made it a permanent fixture in Australian McDonald’s restaurants.
Comment by Alastair on September 11, 2007
See, this is the sort of question which shows why I like economics. It mixes predictable science with unpredictable human behaviour…
On first blush, your question is relatively easily answered by observing that there are no other restaurants offering hamburgers at the $50 price point. So unless McDonalds know something that everyone else doesn’t, it probably isn’t feasible.
But I would imagine that the whole concept of ‘burger’ is permanently linked with ‘cheap’ in the minds of most people. If nothing else, you generally eat a burger with your hands instead of cutlery, and this instantly lowers the price expectations.
(Interestingly I often see people who order burgers in more up-market establishments proceed to eat them with knife and fork. Do they do this simply to be polite to their fellow non-burger-eating diners or to raise the percieved value of their meal? Or both? Or for some other reason?)
So this raises another interesting question: could McDonalds sell a different dish, perhaps a steak or similar, for $50? There are lots of examples of other restaurants doing exactly that. In fact you would have to say that the market is pretty well served. But judging by the turnover of premium restaurants — this is especially pronounced in Sydney although the churn seems to have reduced in recent years, or perhaps I’ve just not noticed — you would have to assume that there isn’t a lot of money to be made selling $50 dishes. This has a lot to do with costs as well, and I think your question was assuming that McDonalds costs, specifically the price paid for beetroot and onions, be kept low. If this was the case, why couldn’t McDonalds pull off the $50 dish?
IANAE but I would imagine that the answer depends on an understanding of market segmentation. Joel explains it.
People don’t like paying $N for anything when the person next to them is getting something comparable for $N/2. Which means that McDonalds hypothetical $50 dishes would have to distinguished to an extrordinary degree from the regular fare. At risk is their current clientele, and once you’ve got rid of them you are back to selling just the $50 dishes and competing against all of the other restaurants trying to do the same. This time your costs are lower of course, so you’ll probably win that market. It may be a pyrrhic victory though; I’m sure McDonalds makes far more money on their current menu that the combined revenue from high-end restaurants.
High-school economics theories like the simple supply/demand curve are in a lot of cases far too simplistic. I think this is one of those cases. Unfortunately high school economics is all I have to offer so perhaps I’d better quit now. Interesting question though.
Comment by Julian on September 11, 2007
Alastair,
Some excellent comments. Thank you.
I agree with this in reality, but I guess I am asking a “what if?” question. What if we lived in an alternate reality where McDonald’s could get exclusive access to a cheap ingredient that made their hamburgers so good that plenty of people would pay $50 for them.
Could you have such a burger sitting next to the $3 one on the menu, with the same level of service and same processes, or would this actually change them into a different sort of restaurant?
Re: Knife and fork
I plead guilty to sometimes doing this. Sometimes I look around for cues from other patrons for polite behaviour. However, up-market burgers tend to be much larger than regular burgers, and sometimes it is not possible to eat them whole without unhinging your jaw. In that situation, I resort to a knife and fork.
This is my (unrealistic) assumption; that the magic golden beetroot will make this distinction. The rest of the thought experiment follows from there.
That’s what I suspect, which is why I found the question interesting.
Thanks again for your comments, Alastair; it is good to see it isn’t just me who finds this worth pondering.
Comment by John Y. on September 12, 2007
Re: Knife and fork
I agree with Julian that sometimes burgers are simply too large, and I consider this a justifiable use of utensils. I offer another reason why some people would use them: They are obsessed with the cleanliness of their hands.
I happen to be one of these people. Well, I am not so obsessed that I always use utensils for food that most people eat with their hands, but if I am not in the mood for my hands to become greasy or sticky or smell like whatever I’ve been eating, I will resort to utensils. Why don’t I simply wash my hands afterwards? Well, I do, and this does take care of greasiness and stickiness, but my skin or body chemistry is such that even after washing my hands thoroughly, they may retain certain smells for hours.
A final note on “unorthodox” utensil usage: For some people in some cases (again, I’m in this class), a hot food or drink may be comfortable in the mouth before it is comfortable on the fingers. This is probably uncommon with burgers if the bun is sufficiently wide to shield the hands from the meat, but I have encountered giant burgers with patties too large for their buns, and this would trigger all three rationales for using utensils (size, cleanliness, and temperature).