McDonald's launches US fast-food price war
Dubbed "Campaign 55", the sales effort will be pitched by management to its franchisees today. The company, which is striving to reverse a recent slippage in market share, will also propose giving a free meal to any customer who does not receive their order within 55 seconds of placing it.
The move could trigger a price-cutting tidal wave throughout the US fast- food industry. Shares of several of the leading players, including McDonald's and the other main burger chain, Wendy's, both dropped on the news yesterday. Shares in Grand Metropolitan, meanwhile, slid 16.5p to 477p.
For US consumers, on the other hand, it could spell a fast-food bonanza. Almost no one with a taste for burgers will miss out; McDonald's alone, with its 12,200 US-based restaurants, has for years been a virtually omnipresent feature of the American urban landscape. It has the twice the number of restaurants of Burger King, the US number two.
McDonald's may, however, face an uphill fight selling the campaign - which derives from 1955, the year of the company's foundation - to its franchise operators. Currently a Big Mac is priced at $1.90. The promised 55-cent price would be rotated between the Big Mac and the still-more expensive McRibs and the Arch Deluxe meals.
For the campaign to happen, it must win the support of a majority of franchisees in each US marketing region. With the cost of producing a Big Mac put at 62 cents each, most outlets will face losing profit in the venture.
The company has told its restaurants, of which 80 per cent are franchises, that action to reverse its sales drift is vital. In one recent memo, it said: "McDonald's price isn't competitive" and that price cuts could turn around "declining momentum of sales, transaction and cash flow".
McDonald's has been hurt in part by its recent introduction in the US of higher-priced, so-called "adult" products including the much ballyhooed Arch Deluxe, which have flopped. While same-store sales declined last year, those of Burger King, which has been cutting prices, rose by 2.6 per cent.
Peter Oakes, an analyst with Merrill Lynch, confirmed the difficulties McDonald's faces. "To move ahead you've got to be gaining market share and McDonald's has been coming out at the lower end of the stick recently," he said.
Burger King, he added, had performed significantly better. "They have tightened their menu, become more focused and much more effective in their marketing."
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