McDonald’s Tweaking Its Dollar Menu

Discussion
Aug 18, 2008

By Tom Ryan

McDonald’s is testing ingredient changes and possibly higher prices for its popular $1 double cheeseburger as part of a reassessment of its Dollar Menu. It also is considering adding a slightly higher tiered menu of budget items.

The modifications come as the chain responds to rising ingredient prices.
In an interview with the Wall Street Journal, Don Thompson, president of McDonald’s U.S. business, said the fast food chain has tested ways to make the double cheeseburger less expensive to produce. At some branches, double cheeseburgers are being sold with one slice of cheese instead of two, and renamed “double hamburger with cheese.” Others are offering a double hamburger without cheese.

But some branches have already raised the price of the traditional double cheeseburger to $1.09 or $1.19. Moreover, the entire dollar menu – whose other products include a hot fudge sundae and a McChicken sandwich – are under review, as the fast food chain considers expanding the next tier of its menu, whose items are priced in a $1.30 to 2.00 range. The move appears to help McDonald’s lift prices on some items but also offer a broader selection of value items to consumers. “We know customers are facing tough times in this economy,” Mr. Thompson said.

Launched in 2003, the Dollar Menu has been a key driver of sales at McDonald’s, and has helped the chain show gains in recent months despite the tough economy. But franchisees recently have complained that the menu has brought too much unprofitable traffic into their restaurants.

Higher cheese prices and an expected rise in beef prices are expected to put particular pressure on the double cheeseburger, the signature sandwich on the Dollar Menu. Mr. Thompson said if McDonald’s moves the double cheeseburger off that menu, there would still be some type of $1 burger.

Last month, chief operating officer Ralph Alvarez admitted the menu looked set to change, saying: “What fits on that menu will look different than now because it has to be profitable. We’ve got to make sure we’re pricing smart, not just pricing low. We’ll make the move at some point.”

Discussion Questions: Is it time to junk the Dollar Menu due to rising food costs? What do you think of the possible introduction of a new tier of $1.30 to $2.00 items? How do you think consumers will react to changes in the Dollar Menu and the new budget pricing tier?

McDonald’s Tests Changes In $1 Burger As Costs Rise – The Wall Street Journal

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22 Comments on "McDonald’s Tweaking Its Dollar Menu"


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Craig Sundstrom
Guest
13 years 9 months ago

Woolworth’s had the same problem–admittedly not the happiest example–and slowly (and quietly) moved away from a round price fetish; MickyD’s has the same choice: either it can raise the price point (i.e. the $2 meal) or it can White Castleize the size of its hamburgers…both ideas have risks (as does doing nothing.)

Gene Hoffman
Guest
Gene Hoffman
13 years 9 months ago

The Dollar Menu is a thing of the past.
McD’s should upcharge to two bucks fast.
Ingredients cost more so who’s kidding who?
Keep quality up; folks will still come to chew.

Doron Levy
Guest
Doron Levy
13 years 9 months ago

There hasn’t been dollar menu at McD’s in Canada in years. I remember being able to get a big Mac for 99 cents back in junior high. Now its the $1.79 value menu. They should maintain the dollar price point, considering the economic situation.

Susan Rider
Guest
Susan Rider
13 years 9 months ago

I agree, don’t mess with the ingredients, that’s messing up the brand. It’s hard to recover from bad product. Like everything else, as the price goes up, keep offering value for the money.

Convenience is also a major factor in McD’s sales.

David Biernbaum
Guest
13 years 9 months ago

The $1.00 deal should be scrapped because it’s no longer possible to provide quality and value for such a small amount. McDonald’s needs to concern itself more with convenience, quality, consistency and value than it does with a gimmick price.

David Livingston
Guest
13 years 9 months ago

I think its going to be difficult for McDonald’s to earn as long as they promote the dollar menu. The margins will just get smaller. Go to any airport McDonald’s and you will probably not even find a dollar menu.

I get sort of sad feeling when I see some skinny teenager in McDonald’s ordering up three double cheeseburgers, fries, and a coke for $5. It’s so cheap, plus easy to figure the cost in his head, that he buys more than he really needs. While this might be the staple diet of our inner cities, I would like to see it changed in mainstream America. Better choices at higher prices seems to be the trend in the food business.

Gene Detroyer
Guest
13 years 9 months ago

I remember when McDonald’s used to have an ad where the customer made their purchase and got change back. I think it was change back on $1.00, but it should have been more. (Does that tell you how long I have been around?)

In any case, McD’s should forget the $1.00 deal. The alternatives of changing ingredients only lowers the value in a strategy that will ultimately eliminate the meat and bun.

Find a new advertisable price point, i.e. $1.49 and support it with big advertising and give the customer good value with good product.

Charles P. Walsh
Guest
Charles P. Walsh
13 years 9 months ago

The demand for items on the Dollar menu will not be significantly impacted even if they were to increase the price to say, $2. The dollar menu is ridiculously cheap now and hasn’t kept up with inflation.

This is simple economics, I don’t think it is even worth McDonald’s time to study the impact, increase the price to $1.50 and provide a “3 for $4.00” deal or whatever multiple raises their average ring to a suitable level.

Steve Bramhall
Guest
Steve Bramhall
13 years 9 months ago

McD’s should go for higher priced greater quality. The fact is, food costs; commodity costs are the highest they have been for a long time and the customer will have to pay. I cannot imagine a customer turning to another non McD’s alternative in the face of a 40-50 cent price hike, especially if it is sold well. The one dollar burger where I live is so skinny there cannot be much more to challenge!

Justin Time
Guest
13 years 9 months ago

Arby’s $1 menu is now 5 items for $6. The portions and selections are still the same.

You can take someone with you and share the five items. I like that.

McDonald’s needs to sort out what price point it wants to offer and back it with advertising.

Wendy’s has all but abandoned its value menu, with most items at $1.49. And somehow, they managed to make these items even less tasty. A big thumbs down to Wendy’s. Gosh, their single is so expensive, I have given up on them.

On the other hand, McDonald’s can pull this off with an advertising blitz. At the right price and the right selection, they can succeed.

But I am afraid you just can’t get any food items for a buck anymore at your local fast food restaurant. A sign of these bad inflationary times.

Doug Fleener
Guest
13 years 9 months ago

I would agree that the key is to offer value and not have to sell at $1.00. They can be grateful their name isn’t McDonald’s Dollar Store. Those poor retailers are really getting squeezed.

So while the staggered value approach makes sense, the challenge, of course, will be marketing it. When someone says Dollar Values then you know exactly what that is. I’m not sure “Various Price Point Values” has the same ring.

Raymond D. Jones
Guest
Raymond D. Jones
13 years 9 months ago

McDonald’s should remember that they are selling a “value meal,” not a dollar meal. Dollar stores have learned that you don’t have to sell everything at a dollar to be a “dollar store.”

Kevin Graff
Guest
13 years 9 months ago

One dollar in 2003 (when the Dollar Menu was launched) is worth about 70 cents now. So, it’s nearly impossible for McDonald’s or anyone to maintain margin in this scenario.

However, the pull of the Dollar Menu can’t be denied, and in these tougher economic times, it might be disastrous to eliminate it completely. Yes, it might need to get paired down somewhat. But they need to get a little more creative on shaking extra pennies from their customers.

One option may be to offer consumers the great ‘upsell’ option that has worked so well for so many other food service and retail businesses. For example, maybe that cheeseburger is just $1, but for a mere 25 cents more they could offer to replace that processed cheese for real Wisconsin cheddar. Or for just 25 cents more, those addictive french fries come with wild dipping sauces. Who wouldn’t dive in to their pocket for another 25 cents? And, therein lies the extra margin needed.

Michael Murphy, Ph.D.
Guest
Michael Murphy, Ph.D.
13 years 9 months ago

I think there is some power in a value menu for $1.00. It’s a magic price. They need to either keep it or replace it with something equally compelling, like Arby’s 5 for $5.95.

Marc Gordon
Guest
Marc Gordon
13 years 9 months ago

I believe shoppers will quickly forget about the 1 dollar items and will quickly migrate to whatever the new “deal” is. As for sales being impacted? I don’t believe it will make any difference to all those who insist on ordering a diet coke with their bacon double cheeseburger and super sized fries.

Michael L. Howatt
Guest
Michael L. Howatt
13 years 9 months ago

The dollar menu is a loss-leader–a practice that has been in effect forever by retailers. If McDonald’s wants to make more margin, then raise prices on all the other non-burger items they have. No one will notice.

Max Goldberg
Guest
13 years 9 months ago

As ingredient prices and transportation costs rise, McDonald’s will be forced to raise prices. This is good and bad news for consumers. They will be forced to pay more than $1 for items that used to be on the dollar menu, but it will allow McD to offer a wider variety of items priced between $1 and $2.

Dick Seesel
Guest
13 years 9 months ago

I’m in a minority but I think the “dollar menu” is a valuable marketing tool for McDonald’s, to help it maintain a value image especially in tough economic times. The challenge is to rethink the components of the menu–maybe a double cheeseburger is no longer feasible for a buck, but a single cheeseburger still works. Maintaining some elements of the “dollar menu” as a low-margin traffic-builder and entry point is worth figuring out, especially if McDonald’s finds other ways to squeeze margin out of its menu by tweaking the price points of its higher-priced offerings.

Mark Lilien
Guest
13 years 9 months ago

Kevin Graff has the right idea: offer some add-ons. Why not beer? The margin is excellent. Dropping the dollar menu just creates opportunity for the competition. Taco Bell originated the dollar menu and it revitalized the company.

Christopher P. Ramey
Guest
13 years 9 months ago

It is an issue of vision and value proposition. Regarding value, it’s better to narrow the offering than downgrade your product. There is also an opportunity to create a second tier value.

The broader issue is vision. When are merchants going to learn not to tie a brand to a moving target? Inflation isn’t new and McDonald’s should have shed itself of the dollar benchmark years ago.

Odonna Mathews
Guest
Odonna Mathews
13 years 8 months ago

Upgrading to a $1.49 or $1.99 deal seems more feasible, but still affordable. I’d also like to see more healthy alternatives for kids and adults. There is room for improvement here.

Jim Johnson
Guest
Jim Johnson
10 years 2 months ago

McDonalds needs to keep the dollar menu as one of the few remaining ways it has to relate to its core group of customers who have frequented its doors for one or two generations now. This menu serves as what may be the only way for the younger demographic group to remain customers. The continual parade of expensive “yet another variation of the same stuff” sandwiches and now their very questionable remodels into peusdo-coffee houses will only result in the further alienation of its true clients, who will seek what was lost at other fast food giants.

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