McDonald's to roll out new $1 items to spur traffic

McDonald’s franchisees have indicated that they're willing to promote products for $1 — but no cheaper — as the brand makes its first moves toward a new value-heavy marketing strategy to turn around faltering sales.

In an email from Fred Huebner, chair of McDonald’s Operators National Advertising Fund, or OPNAD, obtained by Nation’s Restaurant News, the brand indicated that two “value plan energizers” to be put in place for late 2012 and early next year are Snack Size Fish McBites and the Grilled Onion Cheddar Burger, which will debut on the Dollar Menu with national ads beginning in late December.

However, local advertising co-operatives did not approve OPNAD’s plan to offer a 69-cent hamburger and an 89-cent cheeseburger, signaling that McDonald’s owner-operators in the United States have little desire to sell items for less than $1.

“All the co-ops have finished voting on advertising the two business energizers that OPNAD approved for a co-op vote to accelerate our business momentum in the fourth quarter and the start of 2013,” Huebner wrote in his email to McDonald’s owner-operators, corporate staff, and key national and local ad agencies. “I know this was a very fast turnaround, and I appreciate the extraordinary efforts that you all made to enable your co-ops to meet quickly and vote on these programs.”

Plans for the Grilled Onion Cheddar Burger, which were approved by the local co-ops in a prior vote, will continue apace for the late-December rollout.

“Our goal was to build on a plan that we have a great deal of confidence in,” Huebner wrote. “We have a strong system plan, so let’s all stay focused on finishing the year strong, maximizing the power of OPNAD and staying aligned.”

As of press time, McDonald’s had not responded to a request for comment.

The company's imperative for a strong finish to 2012 comes just after its announcement earlier this month that October same-store sales fell 2.2 percent in the United States, the brand’s first monthly decrease since 2003.

Since that disclosure, which followed a 1.2-percent same-store sales gain for the third quarter of 2012, McDonald’s chief executive Don Thompson repeatedly has pointed to a promotional strategy that would promote value aggressively while mixing in premium limited-time offers, like the current Cheddar Bacon Onion sandwich and the upcoming encore of the McRib. The company also ousted Jan Fields as president of McDonald’s USA, replacing her with Jeff Stratton, who takes over the post Dec. 1.

Though McDonald’s will try to increase its traffic and market share through heavier Dollar Menu advertising and additions such as the Snack Size Fish McBites or the Grilled Onion Cheddar Burger, “there’s no way they can do enough discounting to overcome” upcoming comparisons to monthly same-store sales increases from last year, when it benefited from an unseasonably warm winter, said Richard Adams of San Diego-based Franchise Equity Group.

Adams is a former McDonald’s franchisee and now is a consultant for many owner-operators of the brand. He said the Oak Brook, Ill.-based company made a mistake last year by not explaining to investors how much warm weather helped domestic same-store sales results — including a 7.8-percent jump this past January and an 11.1-percent increase in February.

“They downplayed the weather and took all the credit themselves for their innovation,” Adams said. “This winter is going to be considered a disaster … and McDonald’s will be lucky to get a 5-percent decrease [in same-store sales]. Unless we have a spectacularly warm winter, it’ll be miserable.”

He also was skeptical that the “high-low” strategy would be effective when the price points for premium limited-time offers like the CBO sandwich, or even new Quarter Pounder variations being tested, keep rising further and further from $1 due to food inflation.

“Who would pay $4.79 for a sandwich when the two sandwiches on the Dollar Menu are perfectly good?” he said. “It’s just the math. The more you raise prices, the more you encourage people to buy off the Dollar Menu.”

The brand operates more than 34,000 restaurants worldwide, including more than 14,000 locations in the United States.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN