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Latte, Schmatte: At McDonald's It's (Still) All About the Dollar Menu

Now that McDonald's is selling salads, smoothies, frappes and lattes and has gone all wood paneling and earth tones on us with its remodeled restaurants, it's tempting to think that the chain is a sophisticated, fast food version of Starbucks (SBUX), no longer wedded to greasy hamburgers and fried food. In a Business Week article on the semi-retirement of the now passé Ronald McDonald, Bob Dorfman, the executive creative director at Baker Street Advertising in San Francisco, gave voice to this sort of wishful thinking:

He [Ronald] kind of represents the old McDonald's, with the high-fat content foods that are kind of falling out of favor. It's clear that McDonald's is advertising coffee, they're not advertising burgers.
Really? Is that why the chain is running ads like this one highlighting how smart it is to eat a double cheeseburger, fried chicken sandwich and fries off the Dollar Menu?

The idea that McDonald's is more about strawberry banana smoothies than burgers and fries is reassuring, but false. Since 2002, when McDonald's made the Dollar Menu a permanent fixture on its menu and in its marketing, this collection of fast food staples has been the biggest driver of McDonald's business in the U.S.

And as for the idea that high-fat content foods are "falling out of favor," don't tell that to all the restaurant companies putting crazy indulgent new items on their menu, or the people happily scarfing them down. Since Burger King's Ultimate Breakfast Platter has 72 grams of fat, I'm sure no one's eating it.

Don't get me wrong, lattes, frappes and smoothies are a smart addition to McDonald's menu. They represent a growth opportunity and they're bringing in new, particularly female, customers. They boost profit margins and last year even helped McDonald's achieve its highest customer count in more than two decades.

The smoothie sideshow
Which is all well and good -- but from a sheer volume point of view, these nouveau menu items are a sideshow. Most people who go to McDonald's are getting some combination of hamburgers, fried chicken and fries.

The Dollar Menu also features a fruit and yogurt parfait and side salad, but those items are ordered much less often than fries. In the morning, McDonald's customers are ordering sausage McMuffins, sausage burritos and hash browns, which are now part of the breakfast Dollar Menu.

This gravitational pull towards cheap, reliable fast-food basics is especially true among one of McDonald's most important demographics -- lower income teenagers and young adults, particularly blacks and Hispanics. By and large, these customers are not ordering $3.19 caramel mochas. Here's how Steve Levigne, McDonald's vice president for U.S. business research, put it for an article I did in 2006:

The Dollar Menu appeals to lower-income, ethnic consumers. It's people who don't always have $6 in their pocket.
This, of course, is all part of McDonald's brilliance, that they're able to walk the fine line between sophistication and value. And between those 800 calorie, 2020mg-of-sodium angus bacon burgers and the company's "holistic approach to nutrition and well-being."

Image from McDonald's

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