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McDonald’s Orders a Value Meal

McDonald’s Corp. says it will more sharply focus on the value end of its price spectrum following disappointing Q3 results. That means a heavy marketing push behind the new Dollar Menu + More and a likely parade of new McDouble burger variations, as reported earlier. Much of that will come through new media channels: CEO Don Thompson told analysts the chain intends to ramp up its “digital engagement” with consumers.

Mighty Wings sales were at the "low end of our expectations," said CEO Don Thompson.

Mighty Wings sales were at the “low end of our expectations,” said CEO Don Thompson.

For the three months ended Sept. 30, 2013, McDonald’s global same-store sales rose 0.9% with U.S. comp sales up just 0.7%. That less-than-1% gain came despite McDonald’s firing some heavy marketing guns during the quarter: the return of Monopoly and the introductions of steak breakfast sandwiches, the Quarter Pounder BLT and, most of all, Mighty Wings, in September.

Thompson said Mighty Wings sales were at “the low end of our expectations.” September comp sales were up just 0.4%. He conceded that the wings might have been too pricey for the market at $1 apiece, something franchisees had complained about in the Janney Montgomery White operator survey reported here earlier. Although the wings may have been too spicy for some, McDonald’s will sell 35 million pounds of wings, Thompson said. He denied there is a significant rift between operators and headquarters, saying he has “never seen as strong an alignment in years” between franchisor and franchisees.

The real problem, Thompson insisted, is not with the McDonald’s brand but with tight economic conditions and heightened competitive pressures that are hampering all Informal Eating Out market players’ growth. Consumers simply are spending a little less at QSRs, he conceded. In particular, McDonald’s customer base has “bifurcated,” with the mid-to-lower-income part of the base “more stressed on discretionary spending” and more value conscious, he said. Given that, the chain says it expects October sales to be flat despite the rollout of the Southwest Premium McWrap.

The Bacon McDouble is one of the new Dollar Menu + More items McDonald's has tested.

The Bacon McDouble is one of the new Dollar Menu + More items McDonald’s has tested.

The Dollar Menu + More is designed to appeal to that large group of “stressed” consumers. Most products will be priced from $1 to $2, although some items, such as 20-piece McNuggets will be as high as $5. McDonald’s has been testing several new items for this menu including a Southwest McDouble burger topped with tortilla strips, a Bacon McDouble, a McChicken Deluxe and others. These give McDonald’s operators “pricing flexibility” and gives consumers “varying levels of affordability” and a “value ladder” they can climb as desired.

The new arrangement expands on the 10-year-old Dollar Menu that Thompson says accounts for 13% to 15% of sales. One third of all customers leverage the Dollar Menu in some way, he added. McDonald’s pricing is up 2.6% this year, lower than the food-away-from-home component of the Consumer Price Index.

In the third quarter, comp sales in Europe were up 0.2% thanks to strong performances in the UK and Russia and solid results in France that partially offset a decline in Germany. Continuing sales weakness in China, Japan and Australia dragged down Asia/Pacific/Middle East/Africa (APMEA) sales 1.4%. The growth came from the “Other Countries” segment, which includes Canada, the South American stores owned by Arcos Dorado, Latin America and others. The segment had an 8.6% jump in comp sales.

McDonald’s Corp. will lower capital expenditures in 2014, primarily by slowing expansion. Almost all of the cuts will be in developing markets overseas. Still, the chain plans to open 225 units in the U.S., 300 in Europe and 750 in APMEA.

5 comments to McDonald’s Orders a Value Meal

  • Razor512

    So they are finding more ways to ruin their business.

    It is extremely rare to find a mcdonalds that actually places the dollar menu items, on the dollar menu.

    Many McDonald’s in the area are entering a death spiral due to bad business choices. With very little control by the HQ, many local stores do not abide by any sale. Expect to lose a customer when you put an ad on tv for an item that they can’t get in store, or at least not at the advertised price.

    They at least need to force the locations to take the proper dollar menu and advertised items. (No I will not buy a regular plain hamburger for $1.75 and no I will not buy the McDouble from the dollar menu for $2.50, and no I will not buy the McChicken for $1.99.

    The HQ needs to exercise better control over the various store locations. Until that is done, I will never buy from McDonald’s again; I will not waste my time with false advertising.

  • Dom

    Forcing discounts on Franchisees did not work well for Burger King. Back in 2009 BK forced franchisees to carry a $1 double cheeseburger, the claim by franchisees was it cost $1.10 to make. After two years of legal battle and fees, they came to a settlement, but still not a good situation for BK.

    What Franchisors should do is advertise a value menu but not advertise the price.

  • Sekyal

    I haven’t noticed much, if any, pricing different around here. I think the problem McDonalds often has now is too many choices. You used to go in and have burgers or chicken/fish but mainly burgers. Now just about everything under the sun. So people go the easy route and choose the dollar menu since there are too many other choices even in the value meals.
    Don’t get me wrong I like choice, but the menu is trying to be something for everyone which you can’t do, or at least can’t do and do it well at the same time.

    Price does need to be in advertisements though, otherwise doesn’t drive traffic, but instead of a little text at the bottom of the screen, do it in voiceover.

  • zc

    $2.50 for a McDouble? I’ve never seen them for over $1 in Florida. The double cheeseburger is $1.29. I think the only difference is more cheese. The only price increase in dollar menu items I’ve seen in the past 5 years is the double cheeseburger which was replaced by the McDouble. Maybe 1 other item which I can’t recall at this time.

  • Ed Johnson

    Don’t panic, the McDouble is rising to just 1.19.

    The Dollar Menu is switching to single patty sandwiches.

    The main question is how much longer Don Thompson can survive. A personal friend of Barrack Obama at the center of the biggest corporation to be affected by the Affordable Health Care Act. He has no answers for the franchisees, while in the meantime his peers in the corporation have been abandoning ship like lemmings.

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