I was in McDonald’s last night for the first time in a loooooong time. My intention was to purchase a cheeseburger and a small fry, and I expected to spend 2-3 dollars. Both items were on the value menu, but the pricing was a bit off to me.
Next to the cheeseburger on the value menu was a McDouble. The cashier assured me that the only difference between a McDouble and a cheeseburger was that the McDouble had two patties of beef, and two slices of cheese, instead of one. Yet the cheeseburger and the McDouble were both $1.00! But that’s not the strangest part. A small fry, which probably amounts to about half of a potato, was $1.29! Half a potato soaked in oil was 29 cents more expensive than two patties of beef and two slices of cheese on a bun. This would make sense if the fries were a main course, but they’re not. They’re a side dish. An accessory to the meat and cheese.
So I intended to get a small fry and a cheeseburger for around $3.00 and walked out with two double cheeseburgers for $2.00. Granted, I’m sure McDonald’s is making money either way, but couldn’t they charge more for the McDouble? Or perhaps less for the cheeseburger? And shouldn’t the fries be less expensive than both? Is there an actual, viable economic reason for the way these items are priced?
McDonald’s knows exactly what they’re doing for pricing.
The first thing to remember is that people don’t always order based on price. Most people come in to get a drink, a burger and some fries, and they’ll order that regardless of the apportionment of the price. They just don’t consider two burgers and no fries to be a valid option. So pricing is aimed at the people who do care. Clearly the price-sensitive people care more about burger pricing than the other things.
The second thing is to keep the competition in mind. Burger King recently got complaints from franchise owners about their $1 double burger, because it was actually losing them money on each sale. I’m sure corporate considered it worthwhile for the advertising as a sort of loss leader. Either way, this puts pressure on the whole market - McDonald’s doesn’t want to see a Burger King commercial claiming that McD’s burgers are twice as expensive.
Actually a McDouble is two patties, but just one slice of cheese. It replaced the Double Cheeseburger on the dollar menu a year or two ago.
I have occasionally ordered a cheeseburger rather than a McDouble. Sometimes I don’t want as much food as McDouble, and I prefer the ratio of bread/cheese/pickles/meat in a single cheeseburger to that in a McDouble.
The McDouble / cheeseburger pricing went something like this:
When McDonald’s started doing the value menu thing, they added the double cheeseburger as the “flagship” item for a buck. It was previously something like $1.75. It was a good loss leader item, since it was immensely popular.
As food costs rose somewhat, it apparently became unsustainable at a dollar, so they invented the McDouble, which is the same thing minus one cheese slice. The “real” double cheeseburger got bumped up $.20 or so and taken off the dollar menu.
For most of this time, the regular cheeseburger was a little cheaper, I think .89 or maybe .95.
That sounds plausible, but cjepson, I was wondering if you have a cite or numbers, especially about fries? I’ve heard similar things about drinks; eg restaurants running losses on entrees so that they can sell alcohol.
Based on the link below, It sounds like the cost of a soda at McDonalds is measured in pennies. I suspect that the cup may be the most expensive part. It also explains the places the places that offer free refills. The incremental cost for the refill is only a couple of cents.
Your assumptions are spot on. I managed a resteraunt/bar back in my younger years and our biggest profit maker by far was fountain soda. We charged $1.25 for a soda and our cost was about 3 cents. (I am sure the cost is much lower for McD’s with the volume they buy in). And we used glass not disposable cups so we didn’t even have the cost of the cup to absorb. We could refill the drink more times than is humanly possible to consume and still walk away with an huge profit.
This is key across lots of industries, not just fast food. Businesses want to sell their products even to price-sensitive consumers, but they don’t want to give away the higher profits from the consumers who are willing to pay more. Businesses have evolved several strategies to get the most out of both kinds.
Grocery stores and food manufacturers offer coupons. People who are price-sensitive get a lower price, so garner some profit to the store, but they still can then charge higher prices (full price) to those consumers who aren’t as price sensitive.
Airlines sort out the price sensitive consumers by offering drastically lower fares to someone whose trip spans a Saturday night. That way they can fill their seats with marginally profitable consumers, while tapping the most revenue out of the business flyers.
My own industry builds some products with many features and options in every one, but we disable those parts on the ones we sell for cheaper. That way we get to use the same manufacturing line and reduce costs by having only one process, and still sell that product to both sets of consumers.
I only eat breakfast at McDonalds and I like most all the sandwiches. And I do want a hashbrown and soft drink. So I order the value meal, with a small soda. Many times I am hungry and want another (albeit different) side sandwich. The price changes if I order a burrito value meal + side egg mcmuffin or a egg mcmuffin value meal + side of burrtios. Same food, same quantities, different prices.
For a real eye opener price the chicken nuggets. I haven’t been there for a year or so, for a while could get a 4 piece nuggets of the dollar menu, while a six piece would cost you something like $2.50. So there was no conceivable reason to choose a six piece rather than 2 fours. The same was true for the 10 piece as well. I think it finally evened out for the 20 piece.
Oddly, in addition to the McDouble they still sell the Double Cheeseburger (2 patties, 2 slices of cheese) for $1.29. That would seem to indicate that a slice of American cheese costs 30¢, and by extrapolation the bun and two patties combined only cost 60¢.
Indeed, the cost of the waiter/waitress bringing you the refill is more than the cost of the refill. But McDonalds has eliminated even that – you go to the drink machine and get your own refill.
Are you sure it was that low? When I worked in a cinema years ago I calculated the cost of a cup of post-mix drink, and it was more like 50c than the 5c that I assumed it would be. That was including the syrup, gas and cups (which we were required to use as part of the contract with the distributor).
I’m sure McD’s gets a better deal than a small cinema, but still. I think the Newsweek article linked indirectly above is referring to the manufacturing cost, not wholesale.
obbn’s figure includes a non-consumable cup. Even if a glass cup costs $10, over a lifetime of use that would certainly get amortized out to almost nothing per fill. A plastic disposable cup is definitely going to cost more per fill.
Actually I have a feeling the gas was the most expensive part - though this was years ago.
This old thread claims a 5 gallon bag of syrup costs $36, or about $1.90 per litre. At 5.4:1, that’s about 12 large drinks per litre of syrup, or around 15 cents for the syrup alone. Granted at a cinema we probably would have averaged a larger serve per drink than a restaurant.
I’m sure McD’s gets a pretty sweet deal including advertising and licensing. But I’m skeptical of the claim that the cost for a small retailer is only 3 cents a serve.