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Is the dollar menu good for McDonald's bottom line?

People stand in line at a McDonald's restaurant in Times Square in New York City.

McDonald's, the nation’s largest fast food chain, released its earnings for the last part of 2012 on Wednesday. Analysts say its $1.4 billion profit is good, but not great, considering how McDonald's got there.

Seems the Golden Arches put a renewed focus on its dollar menu in an effort to get more people through the doors.

As it turns out, fast-food chains have a “love/hate” relationship with their dollar menus, as evidenced by my recent order at an Atlanta McDonald's. I chose a McDouble, which has two small beef patties, cheese, pickles, ketchup and mustard. Based on that order, I asked John Gordon of Pacific Management Consulting Group if McDonald’s is “lovin’” me.

“You paid $1 approximately for the Double Stack?” Gordon asks.

“Yep,” I answered.

“OK. Very good,” he affirms as he crunches the numbers.

Gordon says he helped fast-food chains develop their dollar menus, so he has a pretty good idea of the profit McDonald’s likely made from my McDouble.

“The McDonalds unit there received about 30 cents,” he says. Had I added a large fry off the regular menu for $2, Gordon says the store would have made an extra $1.50.

That’s where the love/hate comes in. Chains love that dollar menus get folks in the door. They hate that the items costing a buck are hard to make money on.

“So that’s the art and science of putting together a menu with products that have been financially engineered, if you will, with margins that remain attractive to the company that can be sold for prices that are attractive to guests,” says Russ Klein, chief marketing officer for rival chain Arby’s.

In a normal economy, Klein says, a dollar menu attracts about 20 percent -- maybe 30 percent -- of Arby’s customers. But with this economy, it’s in the 35 percent range.

That can make a chain nervous.

“So Arby’s has been very careful to manage the promotion of our value menu,” Klein says.

Notice the semantic shift? Chains are replacing the phrase “dollar menu” with a “value menu.” At Arby’s there are $1 items, but its new “Snack and Save” value menu includes products up to $3. The hope is to emphasize what you get for the money without having to lock down a price on it.

About the author

Jim Burress is a reporter for WABE in Atlanta.
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I chose a McDouble, which has two small beef patties, cheese, pickles, ketchup and mustard. Based on that order, I asked John Gordon of Pacific Management Consulting Group if McDonald’s is “lovin’” me.
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I had to write because there is something I hear far too often on the radio. It is particularly inexcusable from a program based on money. Here it is:

The McDonald's profit was stated as "a billion and a half dollars" which is $1,000,000,000.50. What it should have been called is "one and a half billion dollars" which is $1,500,000,000.00. The difference of 499,999,999.50 (four hundred ninety-nine million, nine hundred ninety-nine thousand, nine hundred ninety-nine dollars and fifty cents is considerable, don't you think??
Perhaps the practice of copy being written with decimals and quantities, such as "1.5 billion", should be abolished in favor of the amount being expressed in words, such as "one and a half billion" or "one billion, five hundred thousand" to prevent confusion.
I am a regular listener to public radio and get annoyed by this far too often. Recently, the number of people lacking food was stated incorrectly so there was "...and a half people" hungry. Was that person only hungry half the time or only half as hungry as everyone else??
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