Cheap burgers take a bite out of McDonald's

Franchisees don't like the chain's margin-sapping low pricing. Plus, US sales dropped for the first time in 10 years.

By Aimee Picchi Apr 19, 2013 12:35PM

A sign outside the fast-food chain McDonaldMcDonald's (MCD) franchisees aren't exactly lovin' it. 


Owners of McDonald's outlets are increasingly pessimistic about their ability to turn a profit, given the fast-food chain's heavy discounting and Dollar Menu items, reports the Nation's Restaurant News, citing a survey from Janney Capital Markets. 


McDonald's has turned to its value menu to boost traffic to stores amid soft global demand, but so far that doesn't appear to be having the desired effect. 


The company on Friday reported a first-quarter profit that was little changed, although same-store sales in the U.S. dropped for the first time in a decade, according to Bloomberg. McDonald's also warned that sales would drop in April, The Associated Press reports


Franchisees said discounting is hurting their ability to sell items at full-margin prices. Asked to rate the level of 2013 discounting on a scale of 1 to 10, with 10 being the highest possible price cuts, franchisees gave an average response of 8.32, NRN notes. The historical average level is 5. 


As previously reported here, McDonald's Dollar Menu is causing something of a bind for the restaurant chain, which wants to lure customers struggling with higher payroll taxes and a still-recovering economy. But getting people into the stores with cheaper items produces a quandary for McDonald's. After all, if you can buy a Sausage McMuffin from the Dollar Menu, why pay the full price of $4.20 for a Big Mac?


Restaurant owners have pushed back against some discounts requested by McDonald's. The Operators National Advertising Fund, a cooperative of franchise owners, recently voted against McDonald's request to sell hamburgers and cheeseburgers for only 69 cents and 89 cents, respectively, NRN notes. About 80% of McDonald's 34,000 restaurants are franchised. 


The group also pushed back against selling McDonald's new McWrap product for $1. The franchise owners, however, agreed to add more $1 items such as the Grilled Onion Cheddar Burger and the Fish McBites, which haven't caught on with customers.


In the meantime, competitors are introducing new products, heating up the battle with McDonald's. Burger King Worldwide (BKW) is serving turkey burgers, while Wendy's (WEN) debuted flat bread grilled-chicken sandwiches. 


"The economy is still coming back," one respondent in the Janney survey said. "The corporation wants so much discounting. When is the cash flow coming up?"


Shareholders are likely asking the same question. 


Follow Aimee Picchi on Twitter at @aimeepicchi.


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200Comments
Apr 19, 2013 2:31PM
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I love Big Mac's and Fillet O' Fishes.....but they just aren't WORTH the price! If they gave me a better product, I'd have no problem paying the full price. Until then, it's the dollar menu for me!
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I'm not paying $4.20 for a Big Mac that has lost the beef!

Apr 19, 2013 2:26PM
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A McDonald's franchise was for years a license to print money.  I have a hard time believing that McDonald's franchisees are having a tough time.  They may not be making as much as they'd like to be making.  Who is?  But I suspect most are still doing well. 
Apr 19, 2013 2:50PM
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It's hard to feel sorry for a company like McDonalds because they can't turn "full-margin" profits like they used to.  Maybe they should cut their advertising costs; it's not like we don't know who they are.
Apr 19, 2013 3:58PM
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It is simple math and common sense.  Who wants to pay 4.20 for a sandwich made with a supposed beef patty that is pulled out of a warming bin when you can get the same beef patty with less fanfare for a dollar.  Honestly if I am going to pay $3 or over for a sandwich I go to DQ, Smashburger, and even Dennys because I prefer that someone cook my burger after I order it not 10 to 15 minutes before I order it and then throw it in a warmer bin.  There is nothing more distasteful than standing up front at McDonalds and seeing them pull that nasty thin thing out of that warming bin.  I am for quality and do not mind waiting a few minutes to get it.  McDonalds is a last ditch idea anymore.  They need to go back to cooking their food to order again.  Too many other fresher options out there that are 100 times better.
Apr 19, 2013 3:55PM
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When my husband and I go to McD's to get a quick breakfast on the way out of town and the cost is over $18.00 for the two of us, I would rather go to a sit down restaurant for that kind of money!
Apr 19, 2013 3:35PM
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everything is overpriced and the burgers are just plain blah. I would like to see them get onion rings on the menu or how about some MC "TOTS" ?? I am suprised they didn't jump on that band wagon. Value meals are not value meals anymore. Even if I have to pay a buck or two more to get a real hamburger I will do that to get a good quality burger. Fries are still okay if you can ever manage to get them while they are hot...

 

Apr 19, 2013 4:39PM
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I grew up loving Mickey-D's.  Over the years, I have seen the sandwich prices double from what they were 5 years ago.  Then there's the problem of good workers... I guess they aren't at Mickey-D's. EVERY time I go and order takeout something is either missing or wrong.  Yesterday, I got a Quarter-Pounder, and when I pulled it out of the box when I got it home, the workers had PUT NO MEAT between the buns!!!  Seriously, I had a bun and cheese with ketchup.  We had to take the thing back and show them... seriously, the workers never questioned giving a customer a $4 BUN???

 

Mickey-D's needs to make sure they have adequate service for their customers charging the prices they are these days.  Anymore, I'm getting Subway and Arby's way more often than McDonald's.

Apr 19, 2013 3:38PM
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"Franchisees said discounting is hurting their ability to sell items at full-margin prices."

 

I wonder just what are "full-margin prices". Is there a book somewhere that tells what the full margin price for a hamburger is?

 

The owner of the McDonalds in my town lives in a gated community. Hard to feel sorry for them because they have to discount some items.

Apr 19, 2013 2:29PM
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THe one near me is clean, fast and the food is always hot and tastes good and the people are nice.  It's always busy.  The guy that own that one makes a killing!
Apr 19, 2013 3:00PM
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TIME FOR MD SUPPER CLUB TO GO BACK BASICS BURGERS AND FRIES OR GO OUT OF BUSINESS.
Apr 19, 2013 4:32PM
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Owner near us has three McDs and she is a millionaire several times over. I will say her stores are clean and generally well run. One thing I have noticed, is that you get what you pay for either mostly tepid employees for minimum wage or barely tolerable food for a buck. For what they charge for their expensive menu items I can go to a local buffet and eat as much as I like of a multitude of items. Examples, Pizza hut lunch, most chinese lunch buffets, Old Country Buffets lunch with just water.
Apr 19, 2013 3:36PM
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Why anyone eats their food is beyond me anyways.
Apr 19, 2013 1:59PM
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Their profit has leveled off wow who'd have thought that without new markets the only way to increase profits is raise prices.
Apr 19, 2013 3:32PM
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I have found a way to avoid all the fast food BS and lousy food by learning how to cook years ago. I now only go to McDonalds to use the bathroom.
Apr 19, 2013 4:01PM
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From what my family and friends can see the  big problems with Mc/donalds is the food isnt good anymore, always giving us the wrong orders and cold food, some actualy dried up, we have stopped going there, because of the dirty conditions, especialy the play rooms,  they are filthy. maybe if they cleaned things up and hired some onsite adult managers to over see the food , especialy the orders going out the drive through, I think would be a gret start to a big come back.  just our opinion from what  we have personaly experienced time and again...too many times! 
Apr 19, 2013 4:21PM
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Their are 5 McDonalds in my community. 1 is only a few years old, and 3 of them have undergone major renovations in the last few years. Seems like they must be doing just fine.
Apr 19, 2013 4:20PM
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Welcome to McDonald's, would you like..."NO".
Apr 19, 2013 3:56PM
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Furthermore, MCD is getting beaten by Subway in the lunch category, as per the Q1 2013 Certify SpendSmart Report.  Also, Chick-Fil-A is beating McDonald's in Atlanta. This data comes from employee expense reports across the USA, for Q1 of 2013.
Apr 19, 2013 4:00PM
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