The Rise Of Dollar Menus
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.