McDonald’s Corp.’s (MCD:US) Dollar Menu is primed for inflation.
The burger chain is testing a new version, dubbed Dollar Menu and More, that includes items selling for as much as $5. The new lineup is being tested in five markets in the U.S., Ofelia Casillas, a spokeswoman for the Oak Brook, Illinois-based company, said in an e-mail. One test includes $1, $2 and $5 fare; another has $1, $1.79 and $4.99 items.
“It just sounds like they’ll be raising prices,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. The industry’s “definition of value has moved up from the Dollar Menu to $1.50 or $2.”
McDonald’s earnings (MCD:US) have trailed analysts’ estimates for the past two quarters amid shaky consumer confidence and more competition from rivals introducing new food. The chain also is facing a franchisee revolt. One point of tension is the increasingly difficult economics of the Dollar Menu, according to a document obtained by Bloomberg News recapping an April franchisee meeting. Store operators also have met to discuss rising costs, including higher rents, as well as how an increasingly complex menu slows down service.
“An important part of this test is making sure franchisees have a strong voice in the decision-making process,” Casillas, the spokeswoman, said in an e-mail. “We encourage this dialogue and working with them to do what is right for our collective businesses and customers.”
Restaurants including McDonald’s have faced higher beef prices after a drought last year made it more expensive for farmers to feed cattle.
“You can’t sell a burger for $1 anymore because the cost of beef has gone up so much,” Saleh said.
Introduced in 2002, the Dollar Menu features 13 items, including hash browns, coffee, McChicken sandwiches and side salads, according to the company’s website. McDonald’s last year introduced a mid-tier priced menu in U.S. stores, raising prices for small French fries and drinks.
To lure diners, the Big Mac seller has been adding new items. Last week, the chain said it would begin selling chicken wings this month. It has also introduced egg white sandwiches and new flavors of Quarter Pounders this year to attract diners.
McDonald’s, which reported a 1.6 percent increase in U.S. same-store sales in July, is scheduled (MCD:US) to report August comparable-store sales on Sept. 10. The world’s largest restaurant chain rose (MCD:US) 0.5 percent to $95.66 at the close in New York. The shares have increased 8.4 percent this year, compared with a 16 percent gain for Standard & Poor’s 500 Index.
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