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Value Menus, Franchisees, and Fast Food: McDonald’s McPick 2 Journey

Posted by Nick Bravo on 5/19/16 9:49 AM
Nick Bravo
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On the heels of its wildly successful all-day breakfast campaign, McDonald’s has rolled out three iterations of its McPick 2 bundle offer this year, seeking to strike a balance between customer’s demand for value and franchisee’s demand for profit. Finding this balance has proven somewhat difficult.

The Dollar Menu Had to Die so the McPick Could Live

McDonald’s currently holds 14,248 franchised restaurants in the U.S., run by 3,000 McDonald's franchisees. To put it mildly, these operators, by and large, were not fans of the dollar menu, desperate to abandon it since its 2002 inception.  Though it helped draw customers during the 2008 recession, the array of cheap options consumed a disproportionate amount of kitchen time and space relative to the item’s value.  Worse, new customers often exclusively ordered these deep-discount items, while existing customers similarly ventured into the dollar menu’s territory, lowering their check value as well.  This led to some well-documented instances of revolt.

Then in 2014, McDonald’s abandoned the dollar menu’s price ceiling, renaming it “dollar and more,” while trying to move in on the fast-casual customer base with increasingly complicated, and comparatively more expensive, offerings. This, CEO Steve Easterbrook now acknowledges, was a mistake.  “We moved away from the Dollar Menu and didn’t replace it with significant-enough value in the eyes of consumers.”

McPick your Own Adventure

To fill this gap, McDonald’s debuted the McPick 2 for $2 earlier this year wherein customers combined two low-cost items, such as mozzarella sticks and French fries, from a list of four. By its nature, the McPick limits the amount of low-cost items in the restaurant, addressing one major franchisee complaint, while also generating excitement among customers seeking affordability.

The company quickly moved on from the McPick 2 for $2 and its ultra-low tier items, and in March debuted the McPick 2 for $5, raising the base price and removing the lowest costing items. For an extra $3 customers selected from “iconic” McDonald’s offerings such as the Big Mac, 10-piece chicken nugget, and Quarter Pounder.  Of note, this bundle required customers to purchase fries, a higher margin item, separately, and did not tread into the basement-level prices of the dollar menu.  Ostensibly, this struck a balance between customer’s demand for deeply-discounted food and franchisee’s need for higher profit margins.

The "Iconic" Big Mac

Failure or Success: Depends on Who You Ask 

The promotions seem to be working.  Sales and stock prices are up and the company is now looking to integrate the McPick 2 into its all-day breakfast menu, testing it in several locations across the country. 

Yet a survey conducted by Mark Kaliowski of Nomura suggests that franchisees are not entirely satisfied. Despite signs of increased optimism among the cohort after an uptick in sales and a more feasible value menu system, discontent remains.

One anonymous franchisee quipped, “McDonald’s has long left the franchisees behind…while forcing the system to continue a price war with our competitors. This erodes margin and post-debt cash flow.” This could explain why, according to an anonymous McDonald’s worker in New York, employees were discouraged by the franchisee from suggesting the McPick to customers, instead waiting for them to bring it up. Said another owner, “We are discounting heavily, against my will.”

McPick’s Future

By regularly shifting the McPick’s bundle offer, McDonald’s keeps customers’ interest piqued while limiting pressure on the kitchen as they try out different combination offers to arrive at a desirable balance between traffic and margin. This strategy has helped them end their streak of seven consecutive quarters of same-store sales declines.

Thus, despite franchisee qualms, McDonald’s intends to continue their bold and persistent experimentation according to Lisa McComb, Director of Media Relations: “The McPick menu definitely has long term potential as we continue to look for ways to give our customers both great tasting food and value.”  

Behind the scenes, McDonald’s will no doubt be trying to strike a similar harmonious balance for franchisees.

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Topics: Market Research, Restaurant

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