December 10, 2009 / 11:42 PM / 9 years ago

McDonald's to expand breakfast Dollar Menu in 2010

LOS ANGELES (Reuters) - McDonald’s Corp will debut a breakfast Dollar Menu across the United States in January, as it fights to sustain traffic and galvanize sales hit by cut-throat competition and a 10 percent jobless rate.

A McDonald's drive-thru location is seen in Toronto March 5, 2009. REUTERS/ Mike Cassese

U.S. sales at established McDonald’s restaurants fell for the second month in a row in November and executives had been signaling that it would take the breakfast Dollar Menu national as high unemployment means fewer morning commuters swing by for food or coffee.

The world’s largest hamburger chain, which dominates the U.S. fast-food morning meal category and is still outperforming its peers — has offered breakfast items for $1 each at restaurants in Chicago and other markets for several months.

Many investors have worried what impact unemployment would have on McDonald’s high-margin breakfast business which accounts for around 25 percent of U.S. sales, and Chief Executive Jim Skinner said in October that the high jobless rate had “some impact” on morning sales.

“It’s defensive ... They’re trying to hold on to what traffic they do have,” Oppenheimer restaurant analyst Matthew DiFrisco said of the new breakfast Dollar Menu.

When the U.S. recession officially started in December 2007, there were 7.5 million people unemployed. By November this year, that number had more than doubled to 15.4 million, according to the Bureau of Labor Statistics.

As diners have less and less money to spend in restaurants, discounting has become rampant.

Falling prices for meat, cheese and other key menu ingredients have made it easier for restaurant chains to protect profits, but the race to offer the best deals is beginning to take a bite out of margins at many chains.

McDonald’s new nationwide breakfast Dollar Menu will be backed by national advertising and include a sausage McMuffin, a sausage biscuit, a sausage burrito, a small 12-ounce coffee and hash browns.

Burger King already has a breakfast value menu and Yum Brands Inc’s Taco Bell, which offers value menu items priced as low as 79 cents, is expanding its U.S. breakfast test.

McDonald’s also said the national launch of the Mac Snack Wrap — a new spin on its popular Big Mac hamburger with a suggested price of $1.49 — is scheduled for next month.

Executives recently said the Mac Snack Wrap was “particularly popular” with diners seeking a smaller-sized meal option.

Sales at U.S. McDonald’s restaurants open at least 13 months fell 0.6 percent in November, after a 0.1 percent dip in October.

McDonald’s shares closed up 45 cents at $61.05 on the New York Stock Exchange.

Reporting by Lisa Baertlein; Editing by Richard Chang and Matthew Lewis

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