Big Macs may be too pricey for Americans
If McDonald reports improving earnings on Friday, one reason will be its Dollar Menu, not its iconic burger.
Sure, McDonald's (MCD) is known for its reasonable prices, but the fast-food giant may be finding that even its iconic burger costs too much for many struggling customers.
When McDonald's reports earnings on Friday, it's expected to produce an increase in first-quarter profit, but the reason for the growth is tied to its Dollar Menu, not the Big Mac, reports The Wall Street Journal.
The implication is that as the economy continues to roil some of McDonald's customers, they're opting for the chain's lower-cost options. The Dollar Menu allows customers to pick offerings such as a Sausage McMuffin accompanied by a small coffee.
The low-price menu's popularity might present something of a chicken-and-egg conundrum for McDonald's. Are consumers opting for the Dollar Menu because they're short on cash, or are they simply picking the lower-cost options because McDonald's offers them?
"Who would pay $4.79 for a sandwich when the two sandwiches on the Dollar Menu are perfectly good?" Richard Adams, a former franchisee and current consultant, told Nation's Restaurant News last year. "It’s just the math. The more you raise prices, the more you encourage people to buy off the Dollar Menu."
A Big Mac costs about $4.20 on average in the U.S., according to the Economist's Big Mac index. In other countries, it's even higher, with Switzerland selling the highest-priced burgers, at $6.81 each.
Aside from promoting its Dollar Menu, McDonald's is trying to lure diners by improving customer service after mounting complaints about rude employees, as my colleague Jonathan Berr wrote on Thursday.
More expensive menu items weren't "resonating with consumers," McDonald's chief executive Don Thompson said, according to The Journal.
Consumers have been hurt on several fronts this year, from a hike in payroll taxes to a jump in gasoline prices. Those blows have been felt not just at McDonald's but at higher-end chains such as Darden's (DRI) Red Lobster.
"Value is critical right now," Lynne Collier, restaurant analyst at Sterne Agee, told The Journal. "The consumer is still very weak, facing higher gas prices, the payroll tax increase and employment barely inching up. Value is the No. 1 driver of traffic, and all these restaurant companies are dying for traffic."
It seems to me like the Big Mac is shrinking. The beef patties seem much smaller than they were 20-30 yrs ago. Where's the Beef!
Remember the commercial from McDonalds?
"What do you get with a burger, fries and a drink?"
How times have changed.
Yes, the price has crept up thru the years and I feel it is too high. I must say though, the $1.00 for any size drinks are a big savings and a big reason I will go to McDonalds. I was just at Burger King two days ago and they have raised drink prices again. $2.00 for a medium drink! Outrageous! For a family of four =$8.00 for 4 medium drinks -vs- $4.00 for 4 medium or large drinks at Mcdonalds. Huge savings if your on a budget.
I used to go to McD's just for the fries, but now it's hit or miss weather you can even get "fresh" fries there.
Maybe they should ah....make them better or at least worth the price....
I haven't eat a Big Mac in well over 10 years...never did really taste like a burger to me anyway. I do occasionally get a McChicken sandwich for a buck which isn't terrible but I've found to be not nearly as good as the $1.00 "chicken crisp" sandwich at my nearby Burger King which is pretty good for a buck.
For me, the breakfast choice at McD's is for the $1 sausage burrito, even though it seems MUCH smaller than when it was first introduced. Generally I try to avoid fast food altogether.
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Reports say the generous benefactor behind the huge gratuities is a former PayPal executive.
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