McDonald's stretches its dollar menu
Oct. 22, 2013
by Monica Watrous
Search for similar articles by keyword: [McDonalds
OAK BROOK, Ill. — In beefing up its bargain platform, the McDonald’s Corp. hopes to improve its competitive position within the quick-service restaurant industry.
The Dollar Menu & More, which features products at $1, $2 and $5 price points, is the latest revision in the chain’s evolving value story.
“As we stretch out the Dollar Menu a little bit more with Dollar Menu & More and provide some additional offers that will be even more appealing to some of the customers, we believe that it will continue to be a compelling offer and still best in class when we look at the overall marketplace,” said Don Thompson, president and CEO, during an Oct. 21 call with analysts to discuss third-quarter results. “One of the things that was attempted a while ago was called an Extra Value Menu. This is very, very different. Dollar Menu & More means that you keep the Dollar Menu price points, and it’s consistent with how we’ve continued to evolve the Dollar Menu since its inception back in the early 2000s.”
Over time, McDonald’s has tweaked its Dollar Menu, swapping out the Big N’ Tasty for a double cheeseburger, then a McDouble sandwich, he added.
“So, we’ve always evolved the Dollar Menu,” Thompson said. “(What we have found) is the need to have a $2 price point for some products that are a slight trade-up from just the $1-based price points that also supports additional margin growth at restaurants. And it gives customers a value ladder of sorts, so that based upon their discretionary spending, they have multiple offers at McDonald’s.”
The Wendy’s Co. made a similar move earlier this year with the launch of its Right Price, Right Size value menu, which features sandwiches and snack-size items at 99c, $1.19 and $1.99 price points.
“There will still be a Dollar Menu,” Thompson said. “What we’ve changed is ‘& More,’ which means we’re adding products at a $2 level and there will be some $5 level products and there may be some other fill-ins. … And so this is one of the ways that we can maintain the Dollar Menu in the face of rising commodities and labor pressures but also get a little bit more margin basis on some of the products at $2 and some of the products at higher price points from there.”
Dollar Menu sales have historically represented 13 percent to 15 percent of total sales for McDonald’s, with about a third of customers leveraging the menu, Thompson said.
“The Dollar Menu definitely, particularly in times like these where you see consumers stretched a little more from a discretionary spending perspective, and you see a bit of a bifurcation relative to the economic strata in the US, it's very important to have that affordability platform and the value, the Dollar Menu that we have,” Thompson said.
Premium products and limited-time offers remain integral to McDonald’s menu strategy. A recent innovation was Mighty Wings, which were launched in September and “resonated with consumers but performed at the lower end of our expectations,” Thompson said.
The problems? Price and spice.
“A dollar per wing was still not considered to be the most competitive in the current environment,” Thompson said. “The other thing we saw, and it’s a very slight modification, but the flavor profile was slightly spicy for some consumers. But having said that, what’s interesting is we sold or expect to sell probably about 35 million lbs. of wings. We can address the challenges with spice or as we look for with price, you will see wings again in the US business. It has been successful for us.”