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Bargain burgers abound
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February 26, 1997: 8:32 p.m. ET
McDonald's franchise owners to vote on proposal to slash Big Mac prices
From Correspondent Katharine Barrett
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NEW YORK (CNNfn) - McDonald's franchise owners will be voting Thursday on the company's plan to slash prices on its venerable Big Mac sandwich. McDonald's wants to sell Big Macs for 55 cents if diners also purchase a soft drink and french fries, and may rotate the sale to other products later.
The company said the move was designed to boost sales, which have been flat or on the decline at many restaurants for the last 18 months.
If Wednesday's trading is any indication, shareholders aren't quite convinced the plan will work. McDonald's shares fell 2-1/2 to close at 44-3/4 on fears that the price cuts would also starve profits. American shares of Grand Metropolitan Plc, the British firm which owns Burger King, fell 1 to 30-5/8 on the NYSE.
The Big Mac price cut represents a bit of an about-face for McDonald's. The chain had bet that its much-hyped, higher-end Arch Deluxe products would turn things around, but that didn't happen.
Several McDonald's franchisees said they would support a price cut if it brings back customers.
But Dean Haskell, restaurant analyst at Everen Securities, said the proposal won't get the shareholder support it needs unless the company can convince them the cuts won't hurt the bottom line.
"I believe McDonald's franchisees will give this a negative vote and that we will not see this proposal enacted," he said.
Peter Oakes, restaurant analyst at Merrill Lynch, said bargain Big Macs will not solve McDonald's larger business problems. (133K WAV) or (133K AIFF)
Even a lot of customers aren't sold on the idea.
"People want to eat more healthy, and broiling is more healthy than grilling," said one customer. "Until they change the perception of customers, I don't think they'll gain much by lowering prices."
Analysts say the chain that pioneered fast food in the 1950s has fallen behind younger competitors like Burger King.
McDonald's may be losing market share, but the company could take comfort Wednesday in the fact that its proposal had a negative impact on some of its competitors.
Shares of Wendy's International were among fast food issues that fell on fears of an all-out food fight. Its stock lost 1-1/2 to close at 20-3/4.
Some say fast food stocks may see some volatility as competitors fight for customers.
"The others are not going to just sit by and let McDonald's cut prices. You'll see a real price war," said Dennis Jorgenson, chief operating officer of the American Marketing Association.
Analysts say lower prices are just part of the recipe for restoring McDonald's luster. They say the first step toward recovery must be improving the quality of its food and winning back younger customers.
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McDonald's Corp.
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