Academic

The McDonald's Dollar Menu

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

McDonald's continues to supply interesting franchising disputes. The most recent revolves around the Dollar Menu: though the cost of food is rising, prices on the Dollar Menu remain fixed. McDonald's and its franchisees view this problem through different lenses.

McDonald's receives royalties based on sales and, thus, has an incentive to increase sales, even reduced-margin or, in some instances, negative-margin sales. On the other hand, franchisees profit only when revenues exceed expenses. The problem with the Dollar Menu is that franchisees don't make money selling a Double Cheeseburger for a dollar.

Franchisees can opt out of the Dollar Menu, but they still are required to pay into a collective advertising fund, so all of those ads promoting the Dollar Menu (reportedly $100 million of McDonald's $810 million measured media buy) are wasted on a non-participating franchisee. Or worse, if customers are upset about not being able to purchase food on the Dollar Menu.

McDonald's is experimenting with Double Cheeseburgers for $1.09 in Georgia and Mississippi, but that sort of blows away the notion of a Dollar Menu. For a brief report on the situation, see Marketplace.

This story reminded me of the old McDonald's television commercial stating that you could get a full meal (burger, fries, drink) and still get change back from your dollar. Gas was about $.25/gallon at the time, too. Anyway, I looked for that old ad on You Tube and couldn't find it, but I did stumble across this very early version of Ronald McDonald ... Yikes!

Full post as published by Conglomerate on June 05, 2008 (boomark / email).