Friday, April 18, 2014
By Tiffany Hsu
Craving a burger off a fast-food dollar menu? Chances are that it now costs more than a buck.
Customers are still reeling from McDonald’s move last month to update its Dollar Menu, which for more than a decade offered burgers, fries and other items for less than a dollar apiece. The menu accounts for as much as 14 percent of the chain’s overall U.S. sales.
But soon, the list will morph into what’s being called the Dollar Menu & More, which mixes the standard $1 items in with $2 goods and $5 shareable family meals designed to, as McDonald’s puts it, “fill the need for choice, flexibility and other preferences.”
The fast-food behemoth isn’t the only one ditching the traditional dollar deal.
Rising costs and changing tastes are pushing prices past the buck barrier. In a quick-service market overrun with more upscale outlets and foodies seeking premium ingredients, the dollar deal may be doomed.
In January, Wendy’s 99-cent bargain menu transformed into Right Price Right Size and includes items that cost as much as $2 each. At Burger King, the changing value menu recently included a limited-time $1.29 Whopper Jr. deal. And Arby’s this spring introduced a menu called Snack ‘n Save, with baked potatoes, chocolate molten lava cake and other products that top out at $3.
“The dollar menu will have to evolve,” said John Gordon, founder of Pacific Management Consulting Group. “If you talk dollar too much, it erodes the customer’s perception of you over time – you don’t find a Maserati for a dollar.”
Some experts say there’s little economic incentive for chains to continue offering dollar meals, which are less profitable than beverages or limited-time promotional items.
More chains are experimenting with pricing, offering different tiers of deals instead of a flat menu of super-cheap options. Restaurants have raised prices to cover increasing food and other costs, hoisting some favorites out of dollar territory.
In the past three years, the number of menu items priced at $1 or less plunged 26 percent at quick-service restaurants, according to a report from the research firm Mintel.
And one-buck menus might not survive looming legislative changes, analysts said. Many fast-food outlets have warned that impending health care reforms will squeeze their already slim margins, possibly forcing more price increases.
Dollar menus could face additional pressure from higher worker pay. In late September, California Gov. Jerry Brown signed off on raising the minimum wage in the state to $10 an hour from $8 by Jan. 1, 2016, a move that analyst Gordon said probably will push the quick-service industry to raise the lowest prices to $1.99 from 99 cents.
“In California, you’re not going to see dollar menus for long in the big chains,” Gordon said.
At least not in their traditional forms. Value menu makeovers are rampant as restaurant chains try to reverse a slide in popularity.
Other chains are tapping into the stunt-eating and convenience-seeking demographics to boost their bargain and combo offerings. Burger King this summer debuted a $1 burger stuffed with French fries, which it touts as “new twists on American classics.”
KFC last month unveiled a patented container called the Go Cup targeted at consumers increasingly eating small snacks behind the wheel. The container, which is tapered to fit in a car’s cup holder, contains seasoned potato wedges and a choice of chicken for less than $3.
KFC may be on the right track. A key quality that draws customers to fast food – its convenience – is still available sans dollar menus, said William McCarthy, professor of health policy and management at the University of California-Los Angeles.
“Economics is only part of what contributes to people’s decisions to eat fast food,” he said. “As appealing as the low cost is, the time cost is even more important, if you ask me. Fast-food places will not lose too many customers if they do away with dollar menus.”
Taco Bell, however, is still charging ahead. The Mexican-style chain is testing a menu called Cravings in Sacramento, Calif., and Kansas City, Mo., including 12 items for $1 each. It could replace the current Why Pay More menu if rolled out throughout the chain later this year.
“This is an industry that’s in a state of flux,” NPD analyst Bonnie Riggs said. “It’s going to be a real battle for market share. They are all trying different ways to drive traffic.”