McDonald's to change Dollar Menu

By The Wall Street Journal

McDonald's (MCD, news, msgs) is testing modifications to its popular $1 double cheeseburger, and higher prices for the sandwich, as it prepares to change its Dollar Menu by next year.

Don Thompson, president of U.S. business for McDonald's, said the company has tested ways to make the burger less expensive to make.

Some restaurants are selling it with one slice of cheese instead of two, and billing it as a "double hamburger with cheese." Others are offering a double hamburger without cheese. Some are selling the traditional double cheeseburger at prices ranging from $1.09 to $1.19.

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The company is also considering expanding what it considers the middle tier of its menu, items ranging from about $1.30 to $2.

"We know customers are facing tough times in this economy," Thompson said.

Launched in 2003, the Dollar Menu has been a key driver of sales at the 14,000 U.S. McDonald's restaurants and has helped it ride out dips in consumer spending. But recently, franchisees have complained that the menu has brought too much unprofitable traffic into their restaurants.

The biggest question for the eight-item menu is what to do with the double cheeseburger, considered its anchor. High dairy prices have pushed up the cost of cheese, and McDonald's predicts more pressure from higher beef costs this year.

Thompson said if McDonald's moves the double cheeseburger off the lower-price menu, there would still be some type of $1 burger.

Internal sales documents reviewed by The Wall Street Journal show that, as of late June, sales of the chain's lattes, cappuccinos and other espresso drinks were off their peak in several main markets where they're being sold. Thompson said "the numbers really don't tell the story."

Lower-priced beverages, including $1.89 iced coffee and a $1 fountain-drink and sweet-tea promotion, have pulled some sales away from the espresso drinks, which range from about $2 to $3. That was something the company hadn't anticipated, he said.

McDonald's overall beverage expansion, adding espresso drinks, smoothies, cold tea, bottled drinks and ice-blended coffee beverages at U.S. locations, is on track to exceed the company's goal of adding $125,000 a year in sales per restaurant, even though it doesn't yet have national advertising behind it, Thompson said.

He sees McDonald's target of the drinks adding $1 billion a year to the company's sales as "definitely achievable." The rollout will be complete at the end of 2009.

This article was reported and written by Janet Adamy for The Wall Street Journal.