Kudos to McDonald's Corporation (NYSE:MCD) for recognizing it has problems and then working to solve them. Unfortunately, a big chunk of the problems it thinks it has aren't the problems it actually has, making its solutions mostly off-target. MCD need not get too excited about the turnaround effort.
So what exactly is McDonald's, and who or what might serve as the model of what the world's largest restaurant chain should strive to be? It's a little company called Giggles N Hugs Inc. (OTCMKTS:GIGL) that "gets it", though McDonald's Corporation may find a move toward the proven (and fast-growing) premise of GIGL will require a complete rework from the ground up.
The healthier-eating mindset is undoubtedly reshaping the way the world thinks about and consumes food. This has been a well-established theme for a while now, and has taken a measurable toll on McDonald's Corporation. Giving credit where it's due, the fast-food chain has made its menu a little healthier overall, and even more so for kids by adding fruit at the expense of fries in Happy Meals, and offering milk instead of soda. But, it's a change that lacks real substance in parents' heads, as the burgers, fries, and chicken nuggets are still packed with sodium, calories, and fat.
Even if McDonald's could work around its less-than-healthy menu challenge, though, it's still missing a big boat - not only are parents unenthused by the McDonald's menu, but well-exposed kids are even getting a little bored with burgers and fries.
An article penned by Barney Wolf earlier this month for QSR (Quick Service Restaurant) Magazine quotes National Restaurant Association's senior manager Annika Stensson as saying of a more open mind when it comes to trying new foods, "They've (children) had more exposure through their parents, who make up the first generation to dine out on a daily basis. That has trickled down to the kids' space."
Sharon Olson, executive director of the Culinary Vision Panel, added that Gen Z members still like pizza, chicken and pasta, but today are looking for variations on those themes. For example, they might be interested in ordering chicken teriyaki or chicken parmesan.
In other words, even kids can get tired of chicken nuggets and cheeseburgers, especially when they've grown up watching mom and dad enjoy all sorts of other foods.
Enter Giggles N Hugs.
To be clear, it's a restaurant designed for kids from the ground up. But, it's also a restaurant built from the ground up designed with the above trends - healthier eating more exciting menus - in mind. It serves pizza, but one of its top selling pies is a goat cheese and sun-dried tomatoes pizza.... something not even at the menu at your nearby Pizza Hut, with topping most kids don't even realize existed. Yet, in the right environment, kids seem to find a new palate.
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Other healthier and exiting options for kids at Giggles N Hugs are stuffed mushrooms, veggie wraps, and turkey burgers. The menu is also loaded with gluten-free and vegetarian options.
The Giggles N Hugs concept is more than just a menu-based threat to McDonald's, however. Giggles N Hugs is also a fun place to visit and play.
The comparisons to Chuck E Cheese are inevitable, and understandable, though don't do Giggles N Hugs justice. Giggles N Hugs is what Chuck E Cheese should have tried to become more like, but instead kept its focus on token-awarding games that are then used to purchase relatively dinky prizes. There's not a lot of socializing in a Chuck E Cheese game room, nor is there a lot of familial-fraternizing in a frequently noisy Chuck E Cheese showroom of animatronic singing animals. At Giggles N Hugs, though, it's all about playing just for the sake of play. Ball pits, bouncies, and climb-ons take center stage whenever story time and other employee-led activities aren't keeping kids' attention.
The proof of the idea's validity is becoming clear too. Last quarter, Giggles N Hugs Inc. sales were up 49% on a year-over-year basis, reaching $913,000 versus $615,000 in the third quarter of 2013. Sales were up considerably on a sequential basis too, from Q2's top line of $822,000. That growth alone confirms the premise has been well-received by patrons, who continue to come back as more newcomers step in. This growth bodes well for the company's planned expansion efforts.
While McDonald's doesn't need to worry about being dethroned as the king of kid-oriented restaurants, the undertow that's making life tough beneath the golden arches is also putting Giggles N Hugs on the map. And, investors are able to come along for the ride.
For more on Giggles N Hugs Inc., visit the SCN research page here.
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