THE INC. LIFE

McDonald’s Just Threw Down the Gauntlet in the Fast Food Price Wars

Going for low price seems a bit desperate, but maybe that’s what McDonald’s is right now.

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BY Erik Sherman - 05 Dec 2017

McDonald's Just Threw Down the Gauntlet in the Fast Food Price Wars

PHOTO CREDIT: Getty Images

When in doubt, try dropping prices? That's what McDonald's just announced it's doing in a move to churn sluggish sales. After a disappearance of a few years, the dollar menu, in a new form, is returning. The company hopes its return can pull business out of the doldrums.

Between competition, some marketing missteps, and falling out of touch with franchisee innovation, McDonald's has been in a challenging position.

Year-over-year quarterly revenue growth has seemed more appropriate to a weight loss company: reductions instead of additions.

McDonald's has tried a number of strategic moves, like all-day breakfast, to get people to come in more frequently. But the company had moved away from the once-popular dollar menu as franchise owners complained about the lack of profits, although other chains have used pricing as a competitive tool, usually in the form of combinations of items for a few dollars.

Now the dollar menu is back for 2018, except it's not just $1 items. Instead, McDonald's will have its $1 $2 $3 Dollar Menu. (I guess you read that "one dollar, two dollar, three dollar dollar.") For $1, you'll be able to get a sausage burrito, a cheeseburger, McChicken sandwich, or any size soda.

At $2, your choices might include a Sausage McGriddle, Bacon McDouble, two-piece Buttermilk Crispy Tenders, or small McCafe drink. And $3 brings a Happy Meal, Sausage McMuffin with Egg, triple cheeseburger, or a chicken sandwich.

Maybe having $2 and $3 choices will help, but how long will it be before the franchisees worry because their revenues and profits will still be too small?

Trying to find the right price, where the seller makes the most money possible without the buyer balking and walking away, is an old problem in economics. But business owners can't rely on the deceptively straightforward curves that suggest easy-to-solve problems.

Depending on low prices can become an addiction and it's one that the fast food industry has brought on itself. People become used to lower prices and then wait to be satisfied.

And when many competitors have also gone the low-price route as well, consumers have plenty of options beyond even an entrenched entity like McDonald's.