Recently there has been a tremendous amount of buzz generated by McDonald’s press release about testing “Tiered Pricing” on their Dollar Menu. They are calling the new menu “Dollar Menu & More.” Items are priced at $1, $2 and $5 levels.
A portion of the buzz is focused on the assumption that McDonald’s is eliminating their Dollar Menu. Another group has expressed that this is a move of desperation by McDonald’s attempting to recapture decreasing sales. Others mention increasing menu clutter and still others point out that the new High Density Kitchen would not be available system-wide for one to two more years. Most of the buzz is negative; however, it does point out many of the potential negatives to the platform.
We see this tiered pricing another way. This is an excellent way for McDonald’s to grow sales and traffic, both short term and long term. Our view is based on many factors, both internal and external.
- In-depth view of the new menu platform
- Improves margins
- Broadens affordability options
- Broadens the variety of options
- Addresses weak sales concerns
- Free publicity
- New digital technology
- High Density Kitchen – more to accommodate offering
Breakfast during all day parts than for any other product.
DEEPER LOOK AT THE ACTUAL PRODUCTS BEING CONSIDERED FOR THE NEW DOLLAR MENU
(while we realize this is just the test menu and the actual menu at launch might be different, the principle is the same)
$1 MENU
- Soft-Serve Ice Cream Cone
- Side Salad
- Cookies
- Grilled Onion Cheddar Burger
- Southwest Burger (new)
- Dijon Swiss Burger (new)
- Buffalo McChicken (new)
$5 MENU
- Big Mac Meal
- Quarter Pounder Meal
- Premium Crispy Chicken Meal
- 20 pc McNuggets
- Filet O’ Fish
$2 MENU
- McChicken add Bacon
- Buffalo McChicken add Bacon
- Grilled Onion Cheddar McDouble
- Dijon Swiss McDouble
- Southwest McDouble
Only three of these products are actually new: Southwest Burger, Dijon Swiss Burger and the Buffalo McChicken. The rest are standard menu items with variations to their toppings. In fact, the three new products are standard core products, just made with different toppings. McDonald’s has created new sandwiches by adding a few new toppings to the ingredient list such as: Swiss Cheese, Dijon Mustard, Buffalo Sauce and Tortilla Chips (none of the ingredients require new equipment, only additional small wares).
By repositioning several other favorite menu items, such as moving the McDouble to the $2 Menu from the $1 Menu and by moving the Big Mac Meal, Quarter Pounder Meal, Premium Crispy Chicken Meal and the Filet O’ Fish Meal to the $5 Menu, McDonald’s has improved margins on the majority of these products by moving them into another tier group and raising their price point under the banner of “Dollar Menu & More” (these Meals typically sell with small French Fries and a small Drink for an average price of $4.69). Included in these test markets is the availability for the consumer to add the Buffalo Sauce to a Big Mac or add Dijon Mustard to the Crispy Chicken Sandwich etc., thus creating virtually an endless array of options while satisfying the consumers’ demand for affordability and their desire for variety.
In recent years we have seen the volatility in the consumers’ spending patterns. Patterns that have not followed traditional explanations; however, in the restaurant industry several key factors have emerged as consumers’ sweet spots. $5 is the sweet spot that they are willing to spend at Lunch. Also, they insist on having many options to choose from when dining out and will patronize those restaurants that meet their demands more than restaurants that do not. McDonald’s new “Dollar Menu & More” perfectly addresses both of these consumer demands. All tiers fall under the $5 price point and the variety of choices is vast.
While all the media is abuzz about McDonald’s new “Dollar Menu & More”, McDonald’s will take advantage of the free critiquing of the platform and then make adjustments accordingly before a national launch. Very clever, but most all products are done this way.
This new “Dollar Menu & More” will also address the concern about weak sales as it offers value at each level for the price sensitive consumer as well as allowing Corporate to make adjustments by adding items to any and all tiers quickly and easily as sales trends might dictate.
The concerns about menu clutter are legitimate; however, with the Digital Menu Boards in most McDonald’s (part of the new reimaging program), this can easily be corrected by simple groupings of similar items on the menu. Additionally, new technology in menu boards offers multiple options for customers to place food orders: new kiosks separate from the traditional order line (similar to an ATM), new Apps for smart phones where customers can order and pay from their phones, and touch-screen portable order tablets located at table tops are all new technology that can improve food orders. These new menu options do not show the entire menu but rather “Heading Windows” that can be opened to view various options by category. The celebrated Digital Menu Boards will mitigate most of the menu clutter. When the new technology is ready, it will eliminate the rest of the clutter.
The new High Density Kitchen is not necessary to launch the new “Dollar Menu & More” platform. Rather this new kitchen will offer the flexibility to prepare Breakfast and other day part foods simultaneously as well as offer expandability as a cooking platform for a wide spectrum of future products.
Overall, the new menu platform will position McDonald’s ahead of their QSR competitors by offering a more balanced menu between premium and value pricing with a multitude of choices for the consumer.