International Law

Value Menu provides no Value for McD's Franchisees

Advertising Agereports 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."

This is an interesting problem, clearly articulated by one multi-unit franchisee in Dallas.

"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. "

Mr. Bailey is suggesting that the value menu ought not to be advertised - even though it is a good every day value proposition.

Now why would this be? Well, I guess if the franchisee loses money on every value meal, it is a little difficult to make up the losses with volume.

On the other hand, volume for the franchisor is will make money -since they take their money off the gross receipts.

"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.

Mr. Kruger said McDonald's put pressure on stores to keep the dollar menu. "The operators are extremely worried about the current cash-flow position."

McDonald's spokeswoman Danya Proud said despite differences of opinion, the organization is dedicated to working with franchisees.

"We don't always agree, but there's always a discussion, because we've got to make decisions that are in the best interest of the brand," she said. "It's very important that these decisions are made together. When franchisees make money, McDonald's makes money, and McDonald's USA makes money when the restaurants make money."

The spokeswoman is not telling the whole truth: the value meal decreases the check size, brings in more customers and the tradeoff favours the franchisor who makes money on the gross receipts.

Full post as published by Misleading Advertising Law on June 03, 2008 (boomark / email).