Industry News | September 11, 2013 |
McDonald’s Higher-Price-Point Value Menu Could Be A Win
In the latest attempt to get sales back on track, improve profit margins, and capture the ever-price-sensitive consumer, McDonald’s announced recently that a new value menu—called Dollar Menu & More—could launch nationally this year.
The menu, now being tested in five U.S. markets, features three prices points: $1, $2, and $5. If adopted nationwide, it would replace last year’s Extra Value Menu, which has items priced closer to $2.
Leslie Kerr, a pricing expert and founder of pricing advisory firm Intellaprice, says the new menu reflects the industry’s shift from dollar menus to value menus. She also says the rollout would be a smart move for McDonald’s, as it could allow the brand to focus on customers who aren’t as price sensitive as those who opt for the Dollar Menu.
Kerr says catering to the most price-sensitive guests can be both difficult and dangerous for a brand. “At some point, operators need to ask themselves if a dollar is realistic,” she says. “Consumers realize that prices increase, and holding on to the dollar market is not good business. It just doesn’t make sense.”
Despite this fact, she says the restaurant industry, especially quick serves, have remained attached to low prices on dollar menus over the years, essentially “training guests to be price sensitive.”
“The industry is sensitive to price sensitivity, but I think the industry is also training guests to be price sensitive,” she says. “You want to cater to loyalty and drive frequency and innovate your menu to have such delicious offerings that people want to try them regardless of the price.”
Items on McDonald’s Dollar Menu & More include burgers with extra beef patties or bacon, chicken items, and 20-piece Chicken McNuggets for around $5, which Kerr says gives guests a bang for their buck. “You don’t just have to stick to a dollar to convey that an item is reasonable,” she says.
Kerr says add-on items would be primed to succeed on a menu like the new Dollar Menu & More. “If you can try to get your customers to buy mainstay items and then have the upsell opportunity on the dollar menu—like the cookies, like the dessert—that’s a great way to build tickets, not to have your main courses there,” she says.
Though it’s possible some consumers will be turned off by the higher-priced items on the value menu, Kerr says, “it looks like McDonald’s is doing this in a thoughtful way that would be hard for reasonable consumers to hold against McDonald’s. It’s a company. They’re trying to maintain profitability like all businesses do.”
In addition, Kerr says more limited-service value menus are featuring items at price points like $1.29, $1.39, and $1.59, “and I think that’s just fine with customers,” she says. “They realize that not many things can be bought for just a dollar. So if the price range is expanded and the offerings seem fair, then that’s great.”
In order for the menu to be a success nationwide, Kerr says McDonald’s must convey to consumers that the offerings and price points are a good deal, while also providing the profit margins that franchisees need. “That’s really a matter of doing homework up front,” she says, “not trying to force fit items to a certain price point.”
In general, Kerr says the idea of the value menu can and should evolve in the limited-service industry. “Operators can still convey value at different price points, which is a concept that seems to be taking on life at McDonald’s with this revised menu that’s in test.”
By Mary Avant
Food & Beverage
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