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Franchisees say low-cost offerings don't jibe with rising commodity costs
WITH SKY-HIGH commodity costs, an increase in minimum wage and consumers trading down to lower-price items, McDonald's owner/operators are starting to push back on the dollar menu credited with much of the chain's turnaround.
Several New York stores have stopped offering the dollar menu, and in one Texas market franchisees voted down local funding to advertise the dollar menu this coming September. They're looking to support higher-margin items instead.
McDonald's has answered by testing the double cheeseburger, the cornerstone of its value platform, for $1.09 in about 50 restaurants in Georgia and Mississippi. But the unrest is more widespread than that.
"The value menu as an everyday-value proposition is probably not a bad thing," said Ed Bailey, a franchisee with 63 restaurants in the Dallas area. "But when you begin to advertise it and make it your marketing campaign, encouraging franchisees to do it because transactions are slipping and comp sales are slipping," there are problems, he said.
The dollar menu also accounts for a considerable portion of McDonald's $810 million measured media buy. Mr. Bailey estimated the chain probably spends $100 million of that advertising the value menu.
These days, Mr. Bailey said, the chain is pushing to boost transactions and same-store sales, with little regard for franchisees' bottom lines. McDonald's U.S. same-store sales have been less impressive than rival Burger King's in recent months.
Mr. Bailey blamed food costs, a minimum-wage increase and more consumers trading down to the dollar menu from premium-price items. Greg Watson, VF-marketing at McDonald's USA, said while the Southern-market tests of the $1.09 double cheeseburger were...