Has McDonald's Menu Gotten Too Expensive?
McDonald's (MCD) may have let its menu prices inch too high.
The world's largest restaurant chain delivered bad news to investors on Thursday. For the first time since 2003 the burger-flipping giant suffered a monthly decline in comparable-store sales. Worldwide comps dipped 1.8% for the month of October. At home, U.S. same-store sales slipped 2.2% compared to October of last year.
Has anyone checked the Hamburglar's pockets, because somebody seems to be stealing Mickey D's money!
Premium Problems
October is typically a good month for McDonald's. It's the time of year when it teams up with Hasbro (HAS) for its annual Monopoly promotion. Patrons flock to its stores for the peel-off game where select menu items come with board game properties. Rare matched sets win big prizes, but many diners still get lucky since one out of every four pieces results in smaller prizes, such as food items that get redeemed during subsequent visits. This October, however, the Monopoly promotion wasn't enough to prevent sales from slipping.
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So could it be that folks have simply just tired of the chain continuing to roll out premium products that run against its core value message?
Going upscale paid off several years ago when premium chicken and fancier salads attracted customers willing to pay more for higher quality eats. Then came the McCafe rollout. Barista-style coffee beverages were introduced two years ago, and fruit smoothies hit the menu last year.
Don't Diss the Dollar Menu
It's been hard for the Golden Arches to find the next premium category. Recent additions to the menu include its somewhat uninspiring chicken bites and CBO sandwiches topped with cheddar, bacon, and sauteed onions.
Adding premium items was part of the chain's barbell pricing strategy. It would offer high-end items including its Chicken Selects and fancy salads on one end, while wooing value-minded diners with its Dollar Menu items.
However, the chain may have gotten a bit greedy. The Extra Value Menu -- with items costing more than a buck -- took priority over the dollar-priced items.
On Thursday, addressing its first monthly dip in comps in nearly a decade, McDonald's recommitted to focusing on the Dollar Menu.
What We'll Shell Out For
It's true that many quick-service chains are doing well at higher price points. Panera Bread (PNRA) and Chipotle Mexican Grill (CMG) continue to post strong store-level metrics. However, even the high-end offerings at McDonald's don't match the perceived quality of Panera's baked goods and sandwiches or Chipotle's natural burritos.
McDonald's has to realize that it didn't become the world's largest eatery operator because of its premium offerings. It's been busy during the recession because it literally gives customers more bang for their buck.
A stronger focus on the Dollar Menu should help.
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of McDonald's and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Panera Bread, Chipotle Mexican Grill, and Hasbro. Motley Fool newsletter services have recommended creating a bull call spread position in McDonald's ticker.
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