McFlation

Scott Reeves  Aug 04, 2008 12:05 pm

McFlation
 
Dollar Menunaires may be forced to pony up more than a buck.
 

 
That evil sparrow with his bow and arrow claimed credit for killing Cock Robin of nursery rhyme fame.

But the grief over the bird's demise is nothing compared with the coming catastrophe of McDonalds (MCD) Dollar Menu, especially the $1 double cheeseburger.

McDonalds, purveyor of fine fast food, faces a basic problem to maintain its profit margins: Raise prices or slice portions. You can bet Burger King (BKC), Wendy's (WEN) and Chipotle (CMG) face a similar choice.

Raising prices defeats the catchy "Dollar Menu" marketing theme. But cutting portion size risks alienating loyal customers.

Some McDonalds stores are selling the famous $1 double cheeseburger with 1 slice of cheese instead of 2, calling it a "double hamburger with cheese." Others offer a double hamburger without cheese, while some continue to offer the familiar double cheeseburger at prices ranging from $1.09 to $1.19.

Bumping the cheeseburger's price above a buck may not be a problem in the land of the "free gift." Pedants ask: If it's not free, how can it be a gift? Similarly, what's an extra $0.09 to $0.19 tacked on to the Dollar Menu, metaphorically speaking?

But this is serious stuff at McDonalds, where the double cheeseburger drives sales on the 8-item Dollar Menu. Higher production costs have increased the price of cheese and the price of beef is almost certain to rise. Both increases are in part driven by higher demand for corn to make ethanol.

McDonalds may move the double cheeseburger off the $1 menu and replace it with another, slightly less splendiferous version.

However this weighty problem sakes out, Federal Reserve Chairman Ben Bernanke doesn't want to be immortalized in doggerel this way:

Who killed McDonald's $1 double cheeseburger?

I, said the Federal Reserve's Grand Pooh-bah,

With my reluctance to raise interest rates to curb inflation,

I killed the $1 double cheeseburger.
Rate this article:  (0 Votes)
Comments (3) See All Comments »
08-04-2008, 12:29 pm
As someone old enough to remember when a McDonald's hamburger was only 15 cents I always wondered why anyone wanting a McDonald's experience would order anything else but the double cheeseburger for ONLY a buck. Here in Denver McDonalds
Read More
08-04-2008, 11:34 pm
anecdotal evidence from sunny San Francisco

Dreyer's ice cream downsized their 1.75 quart container to 1.5 quart while keeping price the same.

Safeway downsized their yogurt an ounce or two while keeping price the same
Read More
08-05-2008, 8:17 am
Cereal boxes have been doing this for a while now - Frosted Flakes is soon to be re-branded as "Frosted Flake"... ;-)
Read More
discuss this article and more on the mv exchange
No positions in stocks mentioned.

Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options.  Click here for a free 14 day trial to OptionSmith by Steve Smith.



The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Ticker Talk
Popular Tickers:
F »AMZN »HIG »
Select
  •  
Talk Now
Share this Talk on your site:
Send us your feedback

Our Professors

rss article alert