Praise the McDollar Menu
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
All hail the mighty dollar [menu]!
McDonald’s (NYSE: MCD) enjoyed higher than expected sales in November thanks to an emphasis on the Dollar and Extra Value Menus.
Sales at restaurants open at least 13 months were up 2.5 percent in November, an improvement over analysts’ expectations, and October’s disappointing earnings.
Analysts predict volatile sales in the fast food industry around the world over the upcoming months. Economic difficulties and high unemployment worldwide will impact sales for all brands. McDonald’s largest market is Europe, where same-restaurant sales rose 1.4 percent, an improvement over analysts’ expectations. Asia/Pacific, Middle East and Africa turned in a 0.6 percent increase, compared to the forecasted expectations of 0.9 percent decline. The company has said it will add “dollar” or “extra value” menus in other countries, too, after seeing positive results from in the U.S., Australia, France and Japan.
In the U.S. fast food restaurant rivals, such as Wendy’s (NASDAQ: WEN) and Burger King (NYSE: BKW) have also put a focus on value products, as well as premium products. Technically, Wendy’s is McDonald’s chief competition in the U.S., although the comparison at times seems unfair. In 2011, Wendy’s surpassed Burger King as the second largest burger chain by restaurant sales volume in the States. Wendy’s operates 6,500 restaurants in the U.S. and 27 countries and U.S. territories worldwide. Burger King operates 12,600 locations worldwide, and McDonald’s has 34,000 locations.
Wendy's, Burger King, Starbucks, and even Taco Bell have increased premium products on their menus. Taco Bell now features a "cantina" menu designed by a chef. Starbucks offers a $7 drink. Hardee's and Carl's Jr proudly feature the "Six Dollar Thickburger," they claim rivals a higher priced restaurant in taste and quality. McDonald's may be putting an emphasis on the Dollar Menu, but it has also added premium products with McCafe, which has helped raise per receipt averages.
Wendy's enjoyed $8.5 billion in 2011 sales compared with $8.4 billion for Burger King. McDonald’s strutted its stuff with $34.2 billion in sales, or roughly $11 billion from the US. Wendy’s 2012 third quarter consolidated revenues were $636.3 million. Comparatively, McDonald’s saw 2012 third quarter consolidated revenues of $7.2 billion.
Burger King's net income fell 83 percent in the third quarter as the chain sold off more of its restaurants to franchisees as part of a turnaround push since changing ownership and going public in 2012.
McDonald’s is not suffering from fierce competition. It does not appear to be losing business to the competition either. The main challenges McDonald’s and the other brands face are bringing in customers as consumers become more health conscious, and a challenging economy. Each of the major brands has turned both to value menus and more premium products to meet these challenges. Additionally, these brands are seeing more competition from “fast casual” restaurants such as Panera and Chipotle, which offer higher-quality food for a little more money.
Notably, while Wendy’s and McDonald’s have put more emphasis on their value menus, Burger King blamed slower growth in the third quarter over the year ago period on a decrease in the number of "value-focused" customers.
McDonald’s will continue to put more focus on the Dollar Menu. Fish McBites and the Grilled Onion Cheddar Burger will soon join the line-up. The company had also hoped to lower the cost of regular hamburgers and cheeseburgers to 69 cents and 89 cents respectively. However, the franchises shot the price reduction down. The cult favorite McRib sandwich has returned for a limited time, and the company hopes to see a bump in December from it.
McDonald's was built on value and affordability. It is nice to see the company putting a focus on the affordable products that made it popular in the first place. In today's economy it often feels that for every customer that can afford the premium coffee, there is one who can only afford the Dollar Menu. Kudos to McDonald's for not only offering an affordable menu, but proving that it can also be done at a profit.
ErinAnnie has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend Burger King Worldwide and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!