Are dollar menu cheeseburgers loss leaders?

I was having a conversation with a friend where I reasoned that I’d save money making my own homemade “McDoubles” (McDonald’s double cheeseburgers) since I consume them regularly.

My friend disagreed, and thought that I’d be better off if I just continue frequenting the restaurant. They can buy in bulk, and even then they’re probably even losing money off of it as a “loss leader” but they make up for it with people buying fries and soda.

Who is correct? Could I as an individual consumer get a better deal if I cut out the middle man and just cook it myself?

There was this recent Burger King lawsuit:

The franchise owners claimed that the promotional campaign was forcing them to lose money.

I heard it once stated that McDonald’s is really just a Coke stand. The margin of profit is from the soft drink sales almost makes the food like a loss leader.

Ground beef is about $3/lb, depending on where you go.
A McDonald’s patty is 6-to-the-pound I think.

A 24-count of Kraft Singles is about $4 around here.
A 12-count of generic burger buns is about $2

So that’s 50 cents for the meat.
17 cents for the cheese
17 cents for the bun

So that’s 84 cents, plus the pennies for the mustard, ketchup, pickle, and onions. Plus the cost of heat. I’d guess that adds another nickel or so to the total, so we’re looking at 90 cents. You can certainly find better deals for the ingredients and get the cost down to around 65-70 cents per burger.

Honestly? It doesn’t seem worth it for me. If you want to factor in the cost of time and labor, you’ll be over the $1/burger mark. To get everything ready, I’d guess you’d need at least 5-10 minutes in the kitchen, I’d venture closer to the 10-minute mark. That said, I don’t consider the cost of my time in equations like this, because it’s idle time, anyway.

Here they used to have the double cheeseburger on the dollar menu (now it’s $1.29, I think). It would be difficult for me to make it for under a buck at home, even if I hit all the sales.

You’re not wrong, in the book “Fast Food Nation,” Eric Schlosser reveals not only soda drink but french fries are also huge money makers. That’s why they always push the fries.

The hamburgers are also profitable but not nearly so much.

As you can see by pulykamell break down the cost of you making your own is similar to McDonalds, but remember McDonalds get much, MUCH cheaper rates to buy food than you could. So McDonald’s cost would be even less

When I worked at McDonald’s there were two sizes of patties 1/4 pound and 1/10 pound. That takes 20 cents off pulkamell’s calculation.

They took the double cheeseburger off the dollar menu and replaced it with the McDouble, which is a double burger with only 1 slice of cheese, instead of the 2 slices on the double cheeseburger.

The power of buying in bulk (as you can experience in a smaller scale by going to Sam’s Club or Costco) is that they get this stuff for significantly less. Not the least because your grocery store prices factor in several cost centers that the restaurant chains don’t have to pay profits to.

By the Burger King lawsuit, they estimated that the raw materials price of the double cheeseburger was 55 cents, but when you combined in their operational costs, it was actually costing them something like $1.10 to make and sell it.

Wow–I didn’t realize they were that small.

edit: So, it’s the McDouble on the dollar menu, though, isn’t it? Not the regular cheeseburger? I seem to remember those being under a buck, though it’s been awhile since I’ve seen the dollar menu.

edit 2: I just realized the OP actually was talking about the double cheeseburgers, so you can actually adjust my calculations up ten cents (2 1/10 pound patties, for a total of a fifth of a pound @ $0.60), if we’re talking single slice of cheese per burger.

Except that McDonalds has a definite cost of paying employees to prepare & sell you this meal. On top of the rent, heat, taxes, etc. on the restaurant itself.

Yes, it’s the McDouble on the dollar menu. And if you order a regular cheeseburger, 1 patty/1 slice. it’s 94 cents.

Which, I guess would point to the McDouble as being something of a loss leader, as I’m sure 1 burger patty costs them more than 5 cents. May not be losing money on it, but they’re certainly not making the margin they’re making on the single cheeseburger.

As previously stated, McDonald’s was losing enough money from their Double Cheeseburger that they took off a slice of cheese and renamed it the McDouble. Wendy’s used to have their “Dollar Menu” burgers (Double Stack & the Jr. Bacon Cheeseburger) raised up to $1.25 (at least the one by me did) until the recession and pressure from the other chains made them drop it back to a buck. I can only guess the $1.25 was partially due to the old price being a loser.

Here’s an article from 2007 talking about the financial loss of “dollar menus” and how fast food joints were trying to tweak it so they’d stop losing as much money.

What about “Quality”? When picking out the meat, you could pick a leaner or fattier meat 90/10 or 85/15. And the cheese slice from kraft singles would be larger than the cheese slice from the store. Then you could cook and season the patty to your personal taste instead of “well done”. For every ingredient there exists numerous alternatives… wheat bread instead of white bread buns, etc.

So Yes, you get a better deal because you have greater quality control.

Making it at home would make it healthier for sure.
What if?
What if the majority of people who went to McDonalds (or other fast food place) always got courtesy water with their meals? Would they lose a lot of profit?

I’m not so sure about that, at least for hamburgers.

I think the point is that if you are driving on the way to someplace else, stop at the McDucks for a $1.00 cheeseburger and don’t order a soft drink or fries you are probably inflicting a loss on the franchise. As soon as you order a drink or fries you may generate some profit for them.

Again, from your point of origin, if you are going out of your way to get the $1.00 burger, you are probably taking a loss. Remember, you have to factor in your costs of going to the grocery store, buying the ingredients, the energy costs or cooking them up and the cost of hot water, etc. of cleaning up.

Bottom line: $1.00 is cheap for one of those bad boys.

I have also heard that this extends to most restaurants except it is the alcohol sales that make the difference between profit and loss.

Which is quality in this case? I want the 85/15 or 80/20 personally. Lean:fat is not an indicator of quality, necessarily.

I think it’s too difficult from outside of the company to assess the cost of supplies and therefore whether the food is a loss or not.

McDonald’s (and other franchises to a lesser degree) controls as much of the manufacturing process as they can by owning the life stock and food producers. And you can bet that whatever price’s can’t be controlled are hedged via various financial products.

I know of one slaughter house which works exclusively for McD’s and all they do is take McD’s cattle and turn them into McD’s meat. McD’s cuts costs by guaranteeing daily volumes to the processor in exchange for lower processing fees per head.

They aren’t buying processed beef on the open market. They aren’t buying wholesale or retail bread and produce. They own these things as far up the source chain as is profitable. There are a lot of middlemen profits that are absorbed into the company.

So while you might think of the cost of their supplies at the wholesale or retail level, they more than likely have their costs much lower than that.

McDonalds must look at customer visits, not just individual food sales. They look at both, but someone is charting the average margin per visit.

Unit sales and the margins are relative, but if they know they consistently average $.90 per visit, and they find ways to increase visits to the store, even at no profit on some items, and they track the per visit margin and it holds at .$90 or other acceptable number, then they are wise to offer (bargain) items that can increase store visits, even if that item is not being sold at profit.

So, it would be bad business to jack the price up on some items, make the item profitable, but drive down customer visits. It would also be bad for the consumer.

Now, if McDonalds ran their whole operation at a loss, burned through cash but survived long enough and with enough to bury a nearby competitor, that would not be McNice.

I worked at a couple of independent businesses that had soft drink fountains. It cost them about a nickel to fill up a cup of pop and they sell it for a little over a buck. They don’t get those generous profit margins with the food.

I bet McDonalds can get coke and cups even cheaper than the places I worked. I wonder if McDonalds corporate has a deal with Coca-Cola corporate or each franchise has to reach a deal with each local coke distributer.

Yes. Not from the minuscule cost of free water, but from people not buying pop.