Is a tiered dollar menu the ticket for McDonald’s?

Discussion
Source: McDonald's
Dec 08, 2017
Tom Ryan

McDonald’s plans to bring back and expand its Dollar Menu with the introduction of a “$1 $2 $3 Dollar Menu,” a move expected to spark a price war in the fast-food space.

McD’s menu, available at participating restaurants beginning January 4, includes:

  • $1: Sausage Burrito, McChicken Cheeseburger, Any Size Soft Drink
  • $2: Sausage McGriddles, 2-piece Buttermilk Crispy Tenders, Bacon McDouble

Small McCafé Beverage

  • $3: Sausage McMuffin with Egg, Classic Chicken Sandwich; Triple Cheeseburger, Happy Meal.

McDonald’s said the moves are designed to protect franchisee margins.

“We built this new menu with variety and value firmly in mind,” said Chris Kempczinski, president, McDonald’s USA.

The “Dollar Menu” was introduced with fanfare in late 2002, but phased out in 2013 as franchisees complained that margins were being affected by rising ingredient prices. McDonald’s soon introduced a “Dollar Menu & More” that included offerings up to $5.00, but discontinued it by 2015 as it failed to drive traffic.

McDonald’s has spent the last two years rolling out gourmet burgers to compete with newcomers like Shake Shack and Five Guys and removing preservatives from Chicken McNuggets as part of steps to upgrade offerings.

Recently, the offer of $1.00 for any-size sodas and its “McPick 2 for $5” menu that included pairings of classic items such as a Big Mac, 10-piece Chicken McNuggets and Filet-O-Fish has driven traffic and complemented purchases of higher-priced items. The McPick 2 and dollar drinks will complement the “$1 $2 $3 Dollar Menu.”

The rollout comes as competitors are increasing their value options. Examples include Taco Bell’s variety of $1.00 offerings, Dunkin’ Donuts $2.00 hot chocolate and Subway’s $2.99 half-subs.

Bob Goldin, co-founder of food industry strategy firm Pentallect, told Reuters that while dollar drinks and McPick 2 have boosted McDonald’s traffic, any increases in food and labor costs could lead to calls for higher prices.

“They are really stuck in a value trap,” Mr. Goldin said.

DISCUSSION QUESTIONS: Will the “$1 $2 $3 Dollar Menu” work better than the “Dollar Menu” for McDonald’s? Can you come up with a value formula that would help McDonald’s boost traffic and preserve margins?

Braintrust
"McDonald’s issue is about how to stay relevant with today's consumer. "
"Sadly, the formula which will help McDonald’s offer value and protect margins is called automation."
"It is never a bad thing to have happier franchisees with stronger margins."

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10 Comments on "Is a tiered dollar menu the ticket for McDonald’s?"


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Neil Saunders
BrainTrust

Sadly, the formula which will help McDonald’s offer value and protect margins is called automation. We can expect to see a great deal more of it over the next few years.

Joy Chen
BrainTrust

McDonald’s issue is about how to stay relevant with today’s consumer. They need to re-evaluate their positioning to their consumer target to determine how to stand out vs. their many competitors. The dollar menu may be a short-term gap measure, but it’s not likely to address the longer-term growth issue.

Steve Montgomery
BrainTrust

The change to the tier pricing will help McDonald’s in two ways. First, with the tiered dollar menu, the McPick 2 and $1 drinks they will be able to better compete with other QSRs’ value meals and the increasing competition from the c-store industry. Second, it is never a bad thing to have happier franchisees with stronger margins.

Ed Rosenbaum
BrainTrust

I looked at what is going to be offered at the different price points and thought to myself how happy I am that there is a Chick-fil-A available. The names in and of themselves are simply not appealing. Take that away from the conversation and it still leaves the question about tier pricing. I do not think it will either help or hurt sales.

Meaghan Brophy
BrainTrust

A revised dollar menu can’t hurt. Wendy’s 4 for $4 is extremely popular. But there are other larger issues impacting traffic and sales. McDonald’s has tough social media and marketing competition from Taco Bell and Wendy’s. Quite frankly, both of which do a better job engaging with consumers. Wendy’s Twitter is all but legendary. Taco Bell does a great job with influencer marketing. They also recently launched a successful clothing line with Forever 21. Sure, it’s about keeping prices low but it’s also about staying relevant.

Tony Orlando
BrainTrust

Anything to help the franchisee make more profit is a good thing, and for me it doesn’t matter, as I only go two or three times a year since their food is pretty bad. They will be fine, as many folks need to save money and will continue to support them.

James Tenser
BrainTrust

McDonald’s announced $1-$2-$3 menu structure could have the advantage of simplifying order decisions for many customers, especially at the drive-through, where seconds count.

Franchisees seek to up profits in two ways — improve margins and increase transactions. The latter matters especially during the morning-coffee and lunch-crunch periods of the day, when the drive-up window can be a choke point in the sales process. That’s why some McD’s stores (and plenty of other fast-food locations) have doubled their drive-up lanes. It’s all about the throughput.

So yes, the new prices are partly a response to meal deal pricing by competitive chains, but I see an operational side too — how do we serve more customers faster?

Mohamed Amer
BrainTrust
There’s a real tug of war here between decisions based on cost versus the dining/driving experience. McDonald’s focus on guest experience, the introduction of technology in the form of order kiosks and streamlining food preparation contribute to increased relevance, convenience, and lowered cost. The Dollar menu simplifies ordering and protects margins up to a point. Can you imagine a $1.25 $2.50 $3.75 menu? Probably not, and might the next step when ingredient costs zoom higher be a $2 $3 $4 step change or a reduction in size for the same dollar menu; or, a shift in the menu items covered. The “experience” from a dining-in versus drive-through is a good way to understand expectations and differentiate the value equation. Service, speed, accuracy of order, ease of ordering and payment, menu choices and pricing, and food quality are all important but have different value relevance depending on which group you belong. The fundamental question of “why does Jane (or Joe) drive past a competitor to visit McDonald’s” must be addressed and understood in order to boost… Read more »
Harley Feldman
BrainTrust

The $1 $2 $3 Dollar Menu will work for McDonald’s as has the McPick Menu. It is easy for the consumer to understand and it communicates a value offering. As traffic picks up, part of the margin in the products will help McDonald’s offset its fixed costs which should improve profitability. Beyond that, McDonald’s will likely be deploying more automation in the future reducing costs even more.

Yoav Vilner
BrainTrust
1 month 8 days ago

The “Dollar Menu” introduced in 2002 by McDonald’s obviously didn’t work out as expected. I can’t tell whether the “$1 $2 $3 Dollar Menu” will work better, but I’m afraid it won’t. Past events and studies on the habits of McDonald’s consumers have shown that these marketing strategies aren’t really working. In my opinion, McDonald’s should try a completely different repositioning and retargeting approach.

wpDiscuz
Braintrust
"McDonald’s issue is about how to stay relevant with today's consumer. "
"Sadly, the formula which will help McDonald’s offer value and protect margins is called automation."
"It is never a bad thing to have happier franchisees with stronger margins."

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