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The Rise Of Dollar Menus

23 April 2010 6 Comments

The deals available at fast food restaurants these days is incredible.  McDonalds is promoting its dollar menu which is great.  You can get a McDouble with cheese for a dollar!  Other chains are doing the same, and Wendy’s even offers a double cheeseburger value meal with fries and drink for $2.99.  What do these trends tell us?

Well, it gives support to the deflationary argument and it gives support to the strapped consumer argument.  In a prolonged deflationary environment, businesses cut prices in order to keep customers that are not spending as much money.

Most mainstream economists argue that deflation is a nightmare and should be avoided at all costs since it can result in a downward spiral of lower revenues leading to job cuts leading to even more lower revenues and even more job cuts, etc.   I do have some problems with this point of view which I documented in the past.

The fast food restaurants and their low prices must be acknowledged as some kind of economic indicator.  Check out a great article on the fried chicken indicator which includes great economic insight from the CEO of Popeye’s Chicken.

As I mentioned not too long ago, I’ve recently started a DRIP plan for McDonalds (MCD) since I believe McDonalds will remain a viable option for strapped consumers looking for the cheapest meal available.  For the similar reasons, I still like companies like Wal-Mart (WMT).

It will be very interesting to see how the rest of 2010 plays out given that we’ve had major news magazines declare victory for the economic recovery, we’ve had a uptick in activity in areas like auto sales, and of course the Dow over 11,000 makes everyone feel wealthy again.  Real problems do remain, however, so what will the near future look like?  Will the problems work itself out due to the increase in American consumption?  Or, will we have a double dip because the economic issues that remain will eventually cause the good feelings to die down?  I don’t know which will occur, but I do plan on preparing for both.  I’d encourage you to do the same.  In the meantime, enjoy some dollar cheeseburgers and dollar coffees at your neighborhood Mickey D’s.

6 Comments »

  • Tom said:

    I think this evidence supports your second hypothesis (strapped consumer) but not necessarily your first hypothesis (deflationary environment). You're not really getting the same thing for less money (deflation). You're getting less food for less money. This is just price-point targeting.

  • Roshawn @ Watson Inc said:

    Two important bellwethers of a deflationary market are plunging house and stock prices. Both indicators suggest some improvement or at least stability (in the case of some housing markets). I have to agree with Tom that this may be price targeting and not deflation.

  • Wingtipwalker said:

    I would point to the rising dow as a more likely indicator of inflation. That's one of the first places "new money" makes an impact. There has historically been a lag between a growth in the money supply and measurable inflation as reflected by the (highly politicized and rarely understood) consumer price index.

    We can be sure that the money supply has grown in the past couple of years with all of the bailouts, govt takeovers, etc., but it's possible/likely that the inflation wave is still a ways out in the ocean coming to clobber the average American in the near future.

  • simple in france said:

    You know. . .I've thought for a long time that crud like McD's was over inflated. At some point you could eat (much better) at a local hole in the wall cafe (Cali-Mex or Vietnamese) for about what you could pay to eat complete garbage at McDonald's. And I do mean, complete garbage. I'd probably be more likely to eat one of their wrappers than one of their sandwiches. I think that stuff was overpriced right up there with the housing market.

  • 20smoney said:

    How about $.59 burgers on sundays and wednesdays!

  • 20smoney said:

    Come oooooonnnn…. I realize it's not gourmet, but not even food? :)