As evidenced by McDonald’s (NYSE:MCD) latest earnings report, released Monday, the world’s largest fast food chain needs to curb the losses, and it needs to so fast. Facing flattened demand and a dropping share price, CEO Don Thompson has worked to launch appealing seasonal offerings, alliances with high-profile organizations, and even healthier menu options, but so far, those efforts have proven futile — that’s where the higher-priced Dollar Menu comes in.
It was back in September when we first learned that McDonald’s was testing a rebranding on its iconic Dollar Menu in five U.S. markets. The refresh, called “Dollar Menu & More” will soon be offered at all restaurants starting November 4, Bloomberg reports. Dollar Menu & More still carries the popular $1 fare, but it also includes offerings that go for $2 and $5, rounding out the “& More” portion of the menu’s new title.
McDonald’s initially faced criticism from its loyal customers, who counted on the chain to keep prices down, but despite the rumblings, Thompson highlighted the advantages of the menu in his earnings call Monday, explaining that it “gives customers a value ladder of sorts, so that based upon their discretionary spending, they have multiple offers at McDonald’s.”
According to Bloomberg, the menu also works to McDonald’s advantage, because it allows the company to keep the $1 items that attract many of its cost-conscious customers while also marketing more expensive sandwiches that warrant a higher price tag.
McDonald’s menu changes are also interesting because they reflect a deviation from the fast food chain’s initial “high-low” strategy — offering low-cost products like a $1 burger while also marketing premium products like McWraps and the steak-and-egg breakfast sandwich for more. McDonald’s has been known “to balance both of those ends of the barbell,” CEO Thompson said, but now the Oak Brook, Illinois-based company is also ready to reap the benefits of offering products from in between.
There’s no guarantee that McDonald’s customers will continue lovin’ the new menu, especially considering the fast food industry as a whole has been hit with lowered demand due to a flooding of the market and more health-conscious consumers turning to healthier fare, but the fast food chain doesn’t have much of a choice as this point, because it simply can’t sell a hamburger at $1 forever.
As highlighted by Bloomberg, $1 in 2002 is the equivalent of $1.30 today, so the Dollar Menu is becoming more and more difficult for McDonald’s to sustain. The Dollar Menu & More allows the chain to keep some of those low-cost offerings on the menu while also regaining some degree of margin. Thompson explained its necessity during Monday’s earnings call, saying, “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 and the franchisees support this.”
So like it or not, the new Dollar Menu is coming — but as evidenced by the company’s latest earnings report, McDonald’s really needs you to like it.
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