McDonald's (NYSE:MCD) and its franchisees are trying to wean customers off its sales-swiping Dollar Menu, but its largest rival may want to take things in the other direction.
Restaurants Brands International's (NYSE:QSR) Burger King is now offering a "5 for $4 Deal" where volume-hungry customers get a bacon cheeseburger, a four-piece order of chicken nuggets, small fries, small soda, and a chocolate chip cookie for just four bucks.
It's easy to see why Restaurant Brands International is missing the boat here. This is a fixed menu at Burger King, unlike the flexible choices that penny-pinchers can sort through at the Golden Arches. That's an ironic distinction given BK's classic "Have it your way" mantra of customization.
McDonald's also offers more cookies and McNuggets for a buck if we're going to break down the components. However, in a cutthroat fast-food world where perceptions matter more than reality, Burger King is starting a price war just when the world's largest burger flipper was starting to flex its pricing elasticity.
The original Dollar Menu at McDonald's helped establish McDonald's as a value-priced dining option for those wanting to eat as cheaply as possible. It's easy to see why franchisees don't like it. Diners gravitate to the buck sandwiches, forgoing the higher margin fountain beverages and sides. McDonald's tried to break that mentality with the Dollar Menu & More tweak, offering a few signature sandwiches for more than a buck.
It didn't necessarily work. Comps at Mickey D's domestic eateries ran negative for several quarters until late last year. This week, the new wrinkle is McPick 2, encouraging patrons to pick up a pair of items for two bucks. It will run nationally for five weeks and then it will be up to individual markets to see if they want to keep it going.
Burger King isn't saying how long the new offer will last. It obviously doesn't mind being a thorn in the side of McDonald's. It also doesn't mind copying the competition. It was Wendy's (NASDAQ:WEN) that kicked off the whole "bundling for bucks" wave three months ago with its "4 for $4" deal. Wendy's deal combines a junior bacon cheeseburger, four chicken nuggets, smaller fries, and a small soda. All that's missing is the cookie.
McDonald's knows how to compete against Burger King and Wendy's. It's been doing this for decades. However, at a time when it's trying to get customers to start spending more at its restaurants, it seems as if everybody else is bent on a price war that only cost-conscious consumers will win.