Well, that was quick. McDonald's (NYSE:MCD) is reportedly scrapping the McPick 2 for $2 menu it introduced last month and is replacing it with a pricier $5 menu, but also giving customers a greater range of options to choose from including Big Macs, Quarter Pounders, and Filet-o-Fish sandwiches.
McDonald's is walking a fine line here. CEO Steve Easterbrook promised to pay more attention to the low-cost end of its menu, noting 25% of its customer base comes to the chain for its value menu offerings, and giving customers more choices that include some of their favorite items should be successful. But raising the price of what he said only a month ago was both popular and a "compelling price point," risks alienating those very customers.
The McPick 2 for $2 menu was a work in progress from the beginning, and was never intended to be the final replacement for McDonald's dollar menu, but it was only launched last month. During the earnings conference call a couple weeks ago Easterbrook had indicated change would come, but that it would be later in the year, so when news outlets suddenly spotted new promotions apparently scrapping the discount menu, it caught many by surprise.
Compared to the bundled offers from Wendy's (NASDAQ:WEN) and Burger King, McDonald's McPick menu had the benefit of being the lowest cost of the three and the only one that offered customers a choice what they got.
Wendy's 4 for $4 menu gave customers a set package of a junior bacon cheeseburger, four-piece chicken nuggets, small fries, and a small drink. Restaurant Brands International (NYSE:QSR) also gave customers of its Burger King chain a preset package that included similar items, but added a bonus chocolate chip cookie that set its offer apart and made its five items for $4 seem a better deal.
Yet McDonald's took a different route altogether. For just $2, customers could choose any two of the following: McChicken sandwich, McDouble cheeseburger, three-piece mozzarella sticks, small fries.
That indeed made it compelling, as Easterbrook said, and separated it from what its rivals were doing, but changing the program so soon after introducing it poses additional risks for the restaurant operator.
- Subway was socked when it abandoned its long-standing $5 footlong sandwich promotion, raising the cost to $6.
- McDonald's suffered a backlash when it changed its Dollar Menu to a Dollar Menu & More that effectively raised the price on the value end.
- It also loses momentum in stealing customers from other rivals as Dunkin Brands (NASDAQ:DNKN) said it was the bundled meal programs that hurt its financial performance last quarter (and not McDonald's all-day breakfast promotion).
The initial reaction to the change by observers doesn't seem overly positive, but that negative outlook appears to be misplaced. McDonald's is giving customers more value for their money (albeit at a slightly higher cost), but it's also mollifying its franchisees somewhat who chafe at these discount deals.
They've been a restive bunch who've grumbled about many of McDonald's changes, many of which they're forced to pay. They've long complained about the overly expansive menu that has too many items, and they're not enamored of the discount options it's introduced. No doubt they appreciate the greater traffic they're supposed to drive to their restaurants, but value meals make them little profit, and at a time when many are still hurting from falling sales deep discounts like the McPick 2 for $2 rubbed them the wrong way.
The McPick 2 for $5 -- yes, the McPick name seems to be staying, for good or ill -- ought to satisfy its customers' desire for even greater selection while perhaps offering a better premium for franchisees.
McDonald's still has a long way to go before it can be seen as having turned the corner on a three-year skein that caused sales to crumble, and though it's put together two consecutive quarters of comparable sales growth it's by no means proved that's sustainable. The new value menu won't change that view either, but it seems more likely to succeed than fail and continues to offer a better value proposition against the rival burger chains.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.