McDonald's Ready to Break the Buck

Walk into most dollar stores these days and one of the first things you notice is that aside from the cheap tsotchkes lining the wall, almost everything else costs more than a dollar.

While some stores like Dollar Tree remain fairly true to form, even it opened up a second chain called Deals to explore higher price points. Family Dollar is a "dollar store" in name only; almost everything it sells is more than a buck. And the price inflation has even given rise to a chain that revels in the five-dollar space, Five Below, which hews to its merchandise costing no more than a fin.

So news that fast-food king McDonald's (NYSE: MCD  ) is also willing to "break the buck" and reprice its Dollar Menu shouldn't come as much of a surprise. In five test markets across the country, the burger joint is sampling customer taste for a "Dollar Menu & More" option that provides choices for $1, $2, and $5 (another menu ran items at $1, $1.79, and $4.99). Without giving specifics, the restaurateur suggests they've been well received.

Like the dollar stores, fast-food restaurants are also routinely bumping up their prices, hoping to gain additional profits from the incremental increases.

Yum! Brands' (NYSE: YUM  ) Taco Bell chain had a "Why Pay More? Menu" for years that started with price points at $0.79, $0.89, and $0.99, but over time those prices crept well beyond the dollar threshold. Only recently has it begun going in the other direction, revisiting the dollar menu again with a new "$1 Cravings" value, though its "Cantina" menu offers food choices in the $5 range.

Similarly, Wendy's (NASDAQ: WEN  ) has a new "Right Price, Right Size" menu that runs items from $0.99 to $1.99, and Burger King Worldwide (NYSE: BKW  ) offers a value menu that starts at a dollar and goes up from there.

But tweaking its offerings is not exactly new for McDonald's either, as it had previously launched what it called an "Extra Value Menu" that had prices as high as $2, but it failed to catch on due to a lack of "simplicity and clarity," according to management, and the fast-food chain quickly backpedaled.

What all this juggling suggests, however, is that the days of the dollar menu are doomed. As a marketing ploy it's been successful, as McDonald's has shown, but in terms of the bottom line it's dicier at best. A few years ago, when Burger King tried to sell double cheeseburgers for $1, its franchisees revolted and sued the company because they were losing money on each burger they sold. 

Breaking the buck and offering higher-priced items will soon become the norm, just as when I walk into my local "$0.99 Dreams" store and find that, yes, I must have been dreaming to think I'd find anything of value for a dollar.

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  • Report this Comment On September 07, 2013, at 5:15 AM, DQ10 wrote:

    Only in America can an industry cry doom and gloom if it were to raise wages because that, horror of horrors, would cause them to raise prices. And at the same time they are all planning on raising prices. This scenario occurs every time some one mentions raising the minimum wage. The industry just keeps growing, not once in 40 years has this doom ever occurred.

    Of course no one talks about helping the profitability of franchises by not selling quite so many.

  • Report this Comment On September 07, 2013, at 5:29 PM, Burstedbladder wrote:

    I'd be asking what they are putting in those 1 dolla menu items. You know it can't be all that healthy for you at that price. Look at the more pricier items and see the difference for yourself.

    It's cheaper, and much easier to cook a healthy meal for yourself at home. Stop supporting places like McD's that clog the arteries of your children and family members. Eating at McD's is ok once a month, but for an everyday meal... hell-to-the-no!

    Stop feeding yourselves and your kids all this McShyt food.

    Start cooking at home.

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