McDonald's Five-Dollar Menu? Why It Might Actually Work

If you live in America, chances are you've tried at least one item from McDonald's (NYSE: MCD  ) massively popular Dollar Menu, which the fast-food giant launched nationwide way back in 2002.

After all, management told investors last quarter the Dollar Menu alone represented between 13% and 14% of the company's total sales, even as the company toyed with its selection to include more unusual, temporary items like the Grilled Onion Cheddar Sandwich, and the Hot 'n Spicy McChicken.

McDonalds stock

McDonald's Hot 'n Spicy McChicken Sandwich, Image source: McDonald's.

But, despite the fact the Dollar Menu remains a solid platform for McDonald's core business, the company is currently debating whether to replace it with something a little more... shall we say... profitable.

Specifically, what would you think about a Five-Dollar Menu?

And yes, I'm serious -- though McDonald's certainly won't be calling it that.

Is the Dollar Menu done?
In fact, McDonald's is already testing a new version of its value menu in five markets across the U.S., aptly dubbed, "Dollar Menu & More."

To Mickey D's credit, this doesn't mean they'll completely do away with all the $1 goodies you've grown to know and love. Instead, there are two different versions of the new menu being tested, each of which include three price points for various items.

The first contains options which sell for $1, $2, and $5, the last of which is reserved primarily for larger shareable items like 20-piece McNuggets, as well as items with extras, like another beef patty, or added bacon.

Meanwhile, the second test menu offers items for $1, $1.79, and $4.99.

Curiously enough, the results of those tests have largely been positive, leading McDonald's to seriously consider whether it should take the monumental step of rolling out the new menu nationwide, which would effectively replace the existing Dollar Menu.

Of course, this doesn't necessarily change the prices for current menu items -- rather, it will largely involve either adding new options (like that extra beef patty), or simply rearranging many choices that are already present.

What's more, for those of you who watch much network TV, it seems like McDonald's has been prepping for the $5 menu onslaught by running this 20-piece McNugget spot every chance they get:

 

So why the change?

In short, McDonald's representatives say, this new menu offers a "broader range of profitability for restaurants," especially as the cost of ingredients continues to rise.

Remember, just last week, McDonald's confirmed they'll be rolling out their new Mighty Wings nationwide by the end of this month, a decision which came just months after high beef prices caused them to drop their Third-Pound Angus Burger line-up, and mere weeks after casual restaurant operator Buffalo Wild Wings affirmed chicken wing prices have finally begun to fall.

But that's also not to say McDonald's competitors are simply sitting on their hands waiting to lose market share. 

Wendy's (NASDAQ: WEN  ) , for example, is working hard to differentiate itself through its Image Activation reimaging program, through which the company is methodically renovating existing locations to help them look more modern. This, in turn, when combined with a more sophisticated-sounding Right Price Right Size value menu, and items like the Pretzel Bacon Cheeseburger, is slowly but surely helping investors and diners alike change their perceptions of Wendy's as just another fast-food joint.

Then, of course, there's good old Yum! Brands (NYSE: YUM  ) , and its Taco Bell subsidiary, for which Yum! hopes to double domestic sales to $14 billion over just the next eight years through a combination of new locations, a breakfast daypart, and affordable items like the new Loaded Grillers, which currently cost only $1.00 from 2:00 PM to 5:00 PM every day through its "Happier Hour" menu.

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Taco Bell Loaded Grillers, Image source: Taco Bell.

Foolish takeaway
Time will tell whether McDonald's Dollar Menu & More will be able to duplicate its small-scale success on a larger national field -- and that's if McDonald's ultimately decides to roll it out of the test phase.

In the end, remember this sort of competition is par for the course for these fast-food giants, and I still think there's plenty of room for multiple companies to succeed in the space over the long run.

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