So what will higher commodity prices and discontent among McDonald’s franchisees do to the Dollar Menu?

The question arose yesterday after McDonald’s disclosed its second quarter results and said it was considering changes to the Dollar Menu, which offers US customers items such as a double cheeseburger or a McChicken Sandwich for a dollar.

That is pretty cheap and it is much more popular among customers than franchisees, which in effect have a price cap imposed upon them by McDonald’s. For other items they sell, they have more freedom to charge a premium.

The effect on franchisees’ profits since McDonald’s introduced the Dollar Menu in has been striking, according to a Stanford University study published last year. It found that McDonald’s had constrained franchisees’ ability to set higher prices than stores directly operated by McDonald’s.

The study found that the”franchisees’ premium” for a Big Mac Meal in 199 was 12.5 per cent but dropped to 3.5 per cent by 2006. In contrast, the premium for Chicken McNugget meals, which did not have a ready substitute on the Dollar Menu, had changed only slightly.

Meanwhile, McDonald’s has been spending the majority of its national advertising budget on marketing budget items such as the Dollar Menu. That has placed further strain on relations with franchisees.

Now, it seems as though something is going to have to give. So it is time to go out and buy that double cheeseburger for a dollar while stocks last.

July 24th, 2008 in Food and Drink | Permalink