Dollar-menu costs can hurt profits
A dollar menu may seem like a great way for McDonald's to cut a profit in hard economic times, but franchisees can get grilled on food costs. Ashley Milne-Tyte explores how the fast food chain can benefit from cheaper items.
McDonald's breakfast items (mcdonalds.com)
TEXT OF STORY
KAI RYSSDAL: I think we've told you before how popular and how profitable dollar menus have become for a lot of fast food chains. They're the classic loss leader: Get customers in the door for a buck, then maybe they'll buy something you can make money on. In that light, McDonald's said this week it's considering a breakfast dollar menu. Profits are already razor thin in the food business.
So Ashley Milne-Tyte reports how much money chains make from those special deals depends a lot on how they serve them up.
Ashley Milne-Tyte: Remember this McDonald's ad? A few office workers sit around bemoaning the state of the U.S. dollar. Then a colleague turns up and tucks into a burger.
Man 1: Hey Bay-go, whad'ya got there fella?
Man 2: Double cheeseburger from the dollar menu.
Man 3: Did I say weak? The dollar's lookin' strong.
Man 1: The dollar's lookin' good!
The ad didn't last that long. That double cheeseburger wasn't looking so good to McDonald's franchisees. They said it ate into their profits.
Sarah Lockyer is with Nation's Restaurant News. She says McDonald's compromised. It took the double cheeseburger off the dollar menu...
Sarah Lockyer: And they created a new sandwich that would be priced at a dollar that is called the McDouble. And that has two patties, but one slice of cheese. So the food costs are much lower.
Lockyer says McDonald's will consider food costs if it launches a dollar breakfast menu. The company's also made other moves to help franchisees.
David Henkes is a restaurant consultant with Technomic.
David Henkes: They've also done a great job with menu development and creating some higher margin items that help sort of buffer the margins and raise check average a little bit.
Things like premium coffee and chicken sandwiches. It may be focused on value meals now, but McDonald's is gearing up for a better economy. It's planning to spend more than $2 million on opening new restaurants and re-vamping old ones.
Sarah Lockyer again.
Lockyer: I think they're being very forward looking. I mean, eventually the economy will rebound, consumers will return and they will look for more than simply dollar menu items.
But Lockyer says they will still find them. The dollar menu is too popular to drop.
I'm Ashley Milne-Tyte for Marketplace.
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