CATCH 22: McDonald's Trapped Between Prices That Are Too High... and Too Low?

AP Photo/Gene J. Puskar, File

McDonald's has a big sale coming up in June to woo back customers driven away by high prices but there's one little catch. Or 22 of them, if we used Joseph Heller's math. With the price of the popular Quarter Pounder meal pushing $10 in some locations — and hitting it easily if you'd like it with two sad, thin little strips of bacon — the new $5 value meal would be a welcome relief for consumers.


For McDonald's franchise owners, however, not so much. The organization representing franchise owners says that they can't afford to sell the new value meals, at least not for very long. Franchise owners, many of which are small businesses operating on tiny margins, are happy to lose a little money for a short time to try and win back customers, but they can't sustain those losses for long. 

But what's the point of a money-losing promotion if it doesn't win customers back to stay? And how do you keep prices low when costs are high? The $5 value meal is being subsidized, at least in part, by Coca-Cola. But more is needed if the value meal is here to stay.

Franchisees are trapped between a low-priced meal they can't afford and high priced-regular items their customers can't afford. Heller's Captain John Yossarian would appreciate the irony. 

Franchisees also face a changing value proposition between fast food joints and traditional restaurants. If my 13-year-old son wants his usual — a Quarter Pounder and McNuggets and large fries and a large Coke — why not take him to the local sports bar down the street where we can both get better food (and better service) for not much more money?


Or maybe I'll just make us both lunch at home because no matter where we go, lunch is expensive. 

In a letter to its members, the McDonald's National Owners Association wrote, "In order to provide the consumer with more affordable options, they must be affordable for the owner/operators. McDonald's vast resources and financial investment are essential to any sustainable affordable strategy."

"There simply is not enough profit to discount 30% for this model to be sustainable. It necessitates a financial contribution by McDonald's." 

Translation: "Show me the money!" If corporate HQ wants or expects franchisees to sell at a loss, then corporate will have to make up the difference out of its own pockets. U.S. sales were up slightly last quarter, driven in large part by what the company called "strategic menu price increases" in its most recent report. So it remains to be seen whether even corporate can afford to subsidize the new $5 value meal.

The National Owners Association letter also suggested that the company focus on creating more affordable menu items with lower food costs that would be more sustainable in the long run than a money-losing, month-long sale item. 


The nationwide deal was approved in a franchisee vote last week, and for $5 customers will get four items, including either a McDouble or McChicken sandwich, small fries, a small soda, and four McNuggets. The offer starts on June 25 and will last about a month. The value meal won't be available in all locations because franchise owners — particularly in high-cost places like California — are free to opt out.

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