Can We Expect to See the Dollar Menu Devalued?

Cheap burgers may be eating into franchisees' bottom lines, a welcome development for the fast-food scolds out there.
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(PHOTO: ARANAMI/FLICKR)

(PHOTO: ARANAMI/FLICKR)

"Value menus" increasingly seem a bad physical deal for consumers—and now perhaps a bum fiscal deal for fast-food purveyors. The cheap chow, long a target for nutrition-focused researchers and  locavoring  advocates, has been criticized for all manner of bad outcomes, mostly centered on obesity. Fast food in general is assailed by these same sources, of course—the book is Fast Food Nation, after all, and not Dollar Menu Dominion—but value menus (and their late cousin "supersize") are seen as particularly egregious in making fat-laden crappy food—despite all the menu labeling, soda shrinking, portion bashing, and bad mouthing in the world— irresistibly cheap.

As nutritionist Lauren A. Haldeman told JoNel Alleccia at MSNBC.com during the depths of the recession, "There are deals all the time for 99-cent burgers. They’re low in nutrition, but they also satiate. If they’ve got to feed a family, they’re going to look for these low-cost foods."

Writing at The Exchange finance blog, Lisa Cherzer documents the reach of the value menu concept in the U.S.:

To get a sense of how widespread the discounts are among the major fast-food players, just check out the latest promotions. McDonald’s late last year brought back its Dollar Menu after trying to push more premium items. In January Taco Bell, which is owned by YUM Brands (YUM), began testing a new $1 Cravings Menu in two markets featuring nine items, three of them new. Also in January, Wendy’s (WEN) introduced a revamped menu called "Right Price Right Size," with items, including the Crispy Chicken Sandwich and Double Stack burger, ranging from 99 cents to $1.99. Subway fans who thought $5 footlongs were too pricey started getting 6-inch subs for $3.

And following McDonald’s, Burger King got aggressive with its menu and launched a limited time offer for a Junior Whopper for $1.29 in February.

For a long time, outsiders tended to assume that the sheer number of offers suggested these were either making big bucks for the eateries or served as a loss leader, luring diners toward pricier styro-fare. But there have been signs all along that cheap eats alone are the draw, creating a stream of unwanted "unprofitable traffic," as the Wall Street Journal, for one, touched on five years ago.

McDonald’s Corp.’s lackluster earnings last Friday suggest the dollar strategy is flailing (although by no means the only problem in Ronald’s house). In her piece, Cherzer puts some meat on that thesis by noting the proprietary work of Mark Kalinowski at financial advisers Janney Montgomery Scott. Kalinowski has been surveying McDonald’s franchisees for a decade, and he reports—channeled by Cherzer—that those vendors have had enough "value": "It's one or the other, the Dollar Menu or other discounting. We can't continue to do both," one is quoted.

It might be too much to hope that Mr. Market can help fast food become Mr. Mom. (And Yum Brands just reported good earnings despite bad bird-flu-related news from China.) Still, perhaps more red on the balance sheet can ultimately improve conditions along two lines—our waist and their bottom.

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