A double cheeseburger for 1 dollar is tasty and cheep. Wendy’s, Carl’s Jr., Taco Bell, Burger King, they all have a dollar/value menu too. Do these fast food resturants actually make money on these items? or are they just luring people into their store to buy expensive combo meals? would mcdonald’s lose money if everyone only bought their 1 dollar double cheesburgers?
I don’t remember where I saw the statistic, so it could be wrong, but I believe that fastfood restaurants (along with movie theaters) make the greatest margin on soda. I would imagine that the greatest percentage of customers who order off of the value menu still order a soda, so most transactions probably end up “in the black”.
Maybe someone will come along who has exact numbers…
I think LisaRx hit the mark exactly. Many businesses actually lose money on the food but when someone orders a huge soda they make a pretty good profit.
Just a wild-ass guess, but I’d wager that the margins on the value menu items are very small, and the restaurant expects to make the bulk of the profits on sodas and fries. Actually selling at a loss would be too risky, since they’d lose money if folks buy only from the value menu.
McDonalds charges $1.35-$1.65 for a 20 oz soda. Even counting the cup, that’s only $0.40 worth of stuff, tops. They’re definitely making a killing there.
McDonalds charges $1.35-$1.65 for a 20 oz soda. Even counting the cup, that’s only $0.40 worth of stuff, tops. They’re definitely making a killing there.
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Eric Schlosser, in his book “Fast Food Nation” gives the skinny on how McDonalds makes a killing on Sodas, especially upsized ones. It’s in Chapter 2, towards the end and the margain is quite spectacular - for example a 20c upsize fromemdium to large is 17c pure extra profit for Mcdonalds
mm
They also have a high markup on fries, but I doubt they’re losing money on the value menu. Remember, their regular hamburger usually sells for 99 cents instead of a dollar, and it’s not on the value menu. They’re making something on.
Also, one value menu item is small fries. Fries are a big profit margin item for McDonalds. Figure they have a quarter pound of potato in a small fry. Potatoes are, what, $5 for ten pounds? That works out to $0.25 worth of potatoes a serving. Add the cost of the oil and salt and you have 30 cents of raw materials selling for a buck. Pretty good markup.
If this helps I have seen some of the $1 menus stating a hard limit of these items (IIRC 6), so it appears that they don’t want you to go it to buy $100 worth of double cheesburgers and nothing else.
As a shift leader at one of McDonalds’ competitors, I can say that a good deal of our customers (especially drunk people who show up at drive-thru after last call) order extensively, and sometimes exclusively, from our value menu. If the value menu items were loss leaders, we’d be out quite a bit of change every time somebody ordered 10+ regular hamburgers or breakfast sandwiches (and that happens at least once a day).
I won’t argue that the margin on soda is higher than burgers, but I have a hard time believing that a double cheeseburger costs McDonald’s anywhere near a buck.
First of all, the beef. . .you’re talking abuot 5 oz of beef (a regular patty is 2.4 oz). That’s less than 1/3 of a pound. At the grocery store, buying GOOD meat by the pound, you can get 5 oz. of fresh ground beef for about $.65.
Now, with McDonald’s you’re talking about the lowest quality, highly processed, frozen pieces of crap on earth that they purchase by the TON. I bet 5 oz. of McDonald’s meat runs them about $.15.
And I doubt the pickles, onions, cheeZ, and bun cost them much more than that.
Now, the costs of paying the employees need to be figured into the margin, but at 6 per hour, the "man-hours" in preparing and serving you that double cheese-burger, probably work out to about 1 minute, or .10 labor.
I’m probably over looking something, but I highly doubt they’re losing money on value meals.
My slightly edumacated guess is that the fast food place finds the whole value menu thing profitable because:
–Because the value menu items are carefully chosen to ensure that the store will at least break even on them.
–The high profit on the sodas people will buy with the value items.
–It gets people into the store. I’d guess that McDonalds doesn’t make much on Happy Meals, but they make it more likely that families will eat there, where the adult will buy a more profitable item. Similarly, the value menu might be the factor that makes a reluctant person willing to eat there with a group of others who will buy regular combo meals.
–And most importantly, the value menu will help convert people into regular users of the fast food restaurant.
Fast food places succeed because of the fact that so many people are habitual heavy users. McDonald will make more money on one person who eats there 3 times a week than on a dozen people who eat there 3 times a year. This is not to say that the 3 times a year person isn’t important, but an adult with established non-fast food eating habits is much less likely to be converted into a heavy user than a teen or young adult who’s habits are not established. And the value menu helps get a fast-food habit established. Or it might make a person who is a heavy user of one fast food place start to choose another part or all of the time.
Fast food is part of many people’s regular routines, and there has been much speculation about the various factors of the food itself that makes it “addictive,” if only just the sugar/salt combination. We all know that once you get a taste for the stuff, it can be hard to break the habit. Furthermore, once the place becomes familiar to you, it becomes comfortable, and makes it more likely that you will go there when you are tired and stressed and want something easy. It makes it more likely that a person in an unfamiliar town will choose that restaurant. So, the fast food restaurants have a great incentive to get people coming through the door regularly. The value menu gives people more reasons to come in. Imagine a person driving down a busy commercial street, wanting a drink and a snack. They could stop at the 7-11 for a soda and a bag of pretzels. But because of the well-advertised value menu, they might stop at McDonalds for a soda and a little burger. Imagine a group of teenagers looking for someplace to eat after school. Some have some money, some only have a buck in their pocket. The value menu makes McDonald’s an appealing choice for that group. The value menu makes it more likely that a habit will be established.
Speaking from personal experience, I ate very little fast food as a kid. It just wasn’t available where I lived. I never got into the habit. In college, a group of guys I hung out with sometimes made a nightly trip to Wendy’s. So, I went a bunch of times. Their value menu was a big part of the reason those guys went there. Then I worked next door to a Wendy’s, and regularly went there for a 99 cent Frosty or Biggie fries on my break. I still don’t have a regular fast food habit, but I do occasionally get a yen for Wendy’s. If I have to choose a fast food place, I choose Wendy’s. I go there maybe 3-6 times a year, so I’m not a heavy user, but it’s often enough to feel comfortable there, and often enough to know that even if I don’t want a burger, that they have other menu items that I’d find acceptable. So Wendy’s value menu was very important in making me a regular customer for the last decade or so, and I see no reason why I won’t remain a Wendy’s customer forever.
I’d imagine that McD’s manages to source the potatoes for way cheaper than that. And everything else. You can’t compare McDonald’s costs to supermarket prices in any way. Their whole operation is about cost-cutting. They have unbelievable economies of scale. And unlike a supermarket, they have a much smaller number of “items” in their “inventory.” An average supermarket sells upwards of 50,000 items. How many ingredients does McDonalds use over their whole menu? I have no idea, but I’d guess it’s several hundred. It’s a lot easier to manage and optimize that number of ingredients than 100 times that number.
And I’d highly recommend that the OP read Fast Food Nation, as it will give him an excellent overall understanding of how fast food places can sell food so cheaply and still remain profitable. (And it’s worth noting that this book is not a one-sided screed against the fast food industry, as some people might expect.)
Plus they probably get kickbacks from Coke for having their logo plastered all over everything. For the most part the Coke costs them next to nothing. (This was the case when I worked at a movie theater; the cost of the syrups versus the money we took in from Coke advertising was pretty much a wash.)
I’m sure McDonald’s buys beef by the ton, but do you have a cite for any of the rest of this?
I once read a business analysis of McDonalds that stated that they broke even on the hamburgers and made almost all of their profit on fries and soft drinks. That was written before they introduced their $1 menu. That helps to explain their fixation on “supersizing” everything.
I am sure Trunk is engaging is a little hyperbole, but the McDonald’s website does little to dispel the notion that their beef is anything more than the minimum grade allowed:
Nothing incriminating, but certainly “federally inspected facilities” is a minimum standard, and nothing to crow about. I would agree, it is probably the cheapest beef that meets minimum federal standards. If it was USDA Choice or better, I am sure they would boast about it.
And I’d highly recommend that the OP read Fast Food Nation, as it will give him an excellent overall understanding of how fast food places can sell food so cheaply and still remain profitable. (And it’s worth noting that this book is not a one-sided screed against the fast food industry, as some people might expect.)
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I was amazed at how even handed FFN was. By the way, I believe that McDonalds least profitable line are McNuggets - although I would wonder about thier margains on these “healthy” food lines - although the imagined savings from fewer lawsuits would colour the break even libe.
Just need to note that Fear Itself was quoting McDonald’s and not me.
And also that the USDA cite linked shows that USDA Choice is second out of eight possible grades of beef. Is there the slightest evidence that McDonald’s uses grade 8 beef as Trunk implied? Or that it is “highly processed,” whatever that might mean?
I just flipped through my copy of Fast Food Nation and found nothing that implied that McDonald’s uses inferior beef. On the contrary:
I’m not suggesting that McDonald’s buys the highest quality beef in the world for its hamburgers, but no fast food chain could stay in business for five minutes that way. Its beef may be terrible quality and worse than any of its rivals. But I want a cite that gives me actual information one way or the other. And for posters to leave the uninformed rants out of GQ.
I happen to know someone reasonably high up in management in McDonald’s. This isn’t true. At least about the lowest quality beef available. Basically, beef is ground up cow meat and fat. And cows are cows. The main difference in beef is the percentage of fat. More fat just means more goes down the grease traps. However, customers don’t care what the weight of the precooked product is. Only what they get. (BTW, regular McDonald’s beef patties are 1.6 oz, and the quarter pound patties are obviously 4 oz.) If you want a “beefy” burger, order the double Quarter Pounder with cheese.
As for price, I never asked. However, as McDonald’s does buy beef wholesale in huge amounts, they get low prices. However, it isn’t “crap”. For a restaurant that sells mostly burgers, using low quality beef would be a poor long term business strategy.
I don’t think that the fact that McD’s required their suppliers to provide them with beef that wouldn’t KILL PEOPLE is evidence that they use a superior grade of beef.
No, McDonald’s would not lose money if they only sold dollar menu items. They are actually in the real estate business and that’s where they make their profit. Don’t believe me? Scroll down here.