McD's Dollar Menu Sparks Franchisee Revolt

 Emily Bryson York reports in Advertising Age that 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.

Bailey blamed food costs, a minimum-wage increase and more consumers trading down to the dollar menu from premium-price items. Dollar-menu sales in the U.S. are now roughly 15 percent of sales, on the high end of the 13 percent-to-15 percent range that's been typical during the past five years. Greg Watson, the chain’s vice president of marketing, said these shifts are seasonal and do not reflect the economy. Bailey, however, said dollar-menu sales have absolutely increased with the downturn but couldn't quantify the shift.

Irwin Kruger, a 40-year McDonald's franchisee with locations in Times Square and Madison Square Garden, said he offered the dollar menu for years but saw his sales slip and pulled it. "By offering the dollar-menu products that were being offered nationally, our average check went down because customers were trading down to the more attractive prices, but we were not attracting enough new customers to make up the difference," he said.

Read the full story in Advertising Age