Analysis: Beef price spike makes $1 McDouble harder to stomach

Fri Feb 1, 2013 12:48am EST
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By Lisa Baertlein

(Reuters) - McDonald's popular $1 McDouble cheeseburger, which has lured customers to the Golden Arches since 2008, is getting hard to sustain as rising beef prices threaten the company's profit margin.

The world's biggest restaurant chain launched a competing $1 Grilled Onion Cheddar Burger in December. It also made the new sandwich - with one beef patty rather than the McDouble's two - a star of current television commercials, a status it shares with the McDouble.

The dilemma for McDonald's Corp (MCD.N: Quote) restaurant operators is that the McDouble has the highest ingredient costs on the Dollar Menu, making it a bad financial proposition unless customers add high-margin sides such as french fries or soda.

"If the McDouble is all the customer buys, you lose money," said Richard Adams, a former franchisee who now advises the chain's restaurant operators. "Depending on what happens to beef prices, McDonald's management should be open to taking the McDouble off the Dollar Menu."

The decision would be a significant one. McDonald's gets 10 to 15 percent of its sales from the Dollar Menu and experts say the McDouble is one of the most popular items on it.

Many franchisees, who pay royalties to the parent company based on overall sales, have exercised their option to move the McDouble off the Dollar Menu by raising its price over $1.

Reuters' checks of McDonald's restaurants in more than a dozen U.S. cities found that franchisees sell the McDouble for $1.09 in San Francisco, $1.19 in Los Angeles, $1.80 in Kodiak, Alaska and $1.89 in New York City.

The McDouble was not even offered on menus at restaurants Reuters visited in Chicago and Boston, but was available on request for $1.29 and $1.49, respectively. It remains on the Dollar Menu in cities such as Phoenix, Fresno, Denver, Seattle, St. Louis and Washington, DC.   Continued...

A McDouble burger is pictured at a McDonald's restaurant in the Fillmore District of San Francisco, California January 30, 2013. REUTERS/Robert Galbraith