McDonald’s Franchisees OK Price Cuts

McDonald’s Corp. said Friday that it is ready to launch what it called an unprecedented promotion that will slash the price of some of its most popular sandwiches to 55 cents and include a major new advertising campaign.

The fast-food giant said its franchisees approved a national value-meal program that includes lowering the cost of some of its sandwiches to 55 cents when purchased with a soft drink and French fries. The company needed at least three-fourths of its 2,700 franchisee owner-operators to approve the plan.

“We’re pleased that our owner-operators weighed the facts carefully and came to the same conclusion we did,” Jack Greenberg, chairman of McDonald’s USA, said. “This initiative will be good for our customers, our franchisees and our business.”

Dick Adams, a former McDonald’s franchisee who now works as a franchisee consultant, said franchisees were under a lot of pressure to approve the plan, one of the first marketing initiatives taken by Greenberg since he was promoted to head the U.S. business.

After a group of owner-operators in San Francisco last week said they didn’t want to participate, Greenberg flew down from headquarters in Oak Brook, Ill., to meet with them, Adams said.

While the low-price promotion carries some risks, McDonald’s and its franchisees need to do something to pull out of a year-and-a-half-long slump in sales growth. Its new, pricey Deluxe line of sandwiches didn’t pull in enough customers to do the trick.

“At some point, you have to draw a line in the sand and say, ‘We’re not going to let our franchise deteriorate any further,’ ” said Dean Witter analyst David Adelman. “They’ve tried some other initiatives, but it didn’t work.”

McDonald’s is now apparently pulling out all the stops for what has been described as its biggest national promotion ever.

“We’re going to have a new ad campaign, new logo treatment and music,” Brad Ball, senior vice president of marketing at McDonald’s USA. “It’s all part of what will break over the next 55 days.”

Ball declined to estimate exactly how much the company will spend promoting the value plan, but he did say McDonald’s will make “a significant investment” in the ad campaign.

McDonald’s has more than 20,000 units worldwide and more than 12,000 restaurants in the United States. More than 80% of its restaurants are owned by franchisees.

The current price of the Big Mac, which varies from region to region, averages $1.95.

Industry analysts also said earlier this week that the move could set off a price war among major fast-food businesses, a conflict that could lower profits and harm relations with franchisees.

However, a spokesman for a group that manages advertising campaigns for the franchisees said the value-meal program could spark more business.

“We intend to attract customers with price and bring them back with the experience,” said George Kunz, chairman of the fast-food chain’s Operators National Advertising Board.

“We followed the due process, shared all of the information we had and asked for the collective thinking of our operators in helping to make a decision,” Kunz said.

McDonald’s stock fell 25 cents to close at $43.25 on the New York Stock Exchange.

The shares fell on concerns that the price cuts would erode profit and sales.

Merrill Lynch analyst Peter Oakes said in a report that investors had the same reaction six years ago, when McDonald’s introduced its Extra Value meals, low-priced packages that include a sandwich, fries and a soft drink.

Earlier this week, a number of other fast-food companies said they would not be following McDonald’s price-cutting plan.