​Dollar Menu Fails At McDonald’s Despite Profit Earnings

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April 21, 2013
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Even the Dollar Menu fails to drive more McDonald’s burger sales, but the company did report a higher profit margin in the first quarter.

The company has responded to competition by touting its Dollar Menu as Burger King and Wendy’s have stepped up their marketing campaign.

McDonald’s said Friday that an important sales measurement fell 1 percent during the period and warned that it’s expected to dip again in April.

That marked the first quarterly decline in a decade in sales at restaurants open at least 13 months and underscored the troubles the company has been facing.

The Dollar Menu strategy has caused concern among analysts who worry that it could eat into profit margins. It’s also rankled some McDonald’s franchisees, who operate the vast majority of its restaurants in the United States.

But in a conference call with analysts Friday, McDonald’s executives insisted that offering cheaper prices was necessary in the current climate. Since the restaurant industry is barely growing, they said McDonald’s needs to steal customers away from rivals to grow.

“That battle for market share has become so critical for the long-term health of business, we’re willing to sacrifice that margin,” said Peter Bensen, the company’s chief financial officer.

Although profit margins declined during the first quarter, McDonald’s noted that it picked off market share in many parts of the world, including the United States.

But there are signs such deals aren’t sitting well with the independent franchisees who operate restaurants.

A survey by Janney Capital Markets released this week found that a sampling of 25 U.S. franchisees who collectively operate 180 McDonald’s restaurants on average rated their relations with the company below their historic levels. Janney said some complained about excessive coupons and discounts.

Meanwhile, McDonald’s emphasis on the Dollar Menu, which began last year, has had a ripple effect in the industry. Burger King recently said it’s retooling its strategy and is now touting a deal for a $1.29 Junior Whopper, among others. Wendy’s also revamped its value menu last year, saying it wants to offer customers more options.

The focus value menus and deals, which have long a staple in the traditional fast-food industry, is in contrast to attempts by the same chains to evolve and adapt to changing tastes. As more people flock to places such as Chipotle and Panera McDonald’s has also tried to freshen up its offerings and raise the image of its food. In addition to the chicken McWraps, for example, the company is rolling out a version of its Egg McMuffin made with egg whites next week.

Such items are generally more expensive, and McDonald’s CEO Don Thompson noted that they could help improve margins in coming quarters.