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Analysts see McDonald’s Dollar Menu changes ahead

McDonald’s Corp will likely raise the price of its flagship Dollar Menu item, the Double Cheeseburger, and replace it with a new double hamburger with one slice of cheese, analysts said.
“The double cheeseburger will likely rise from 99 cents to $1.19, while a new product, called ‘McDouble,’ will be a double hamburger with one slice of cheese,” J.P. Morgan analyst John Ivankoe said in a client note on Friday.

McDonald’s Double Cheeseburger has two beef patties and two slices of cheese. The new McDouble would be different in that it would have only one slice of cheese.

McDonald’s executives said on the company’s October 22 earnings conference call that they were testing products and that a decision about Dollar Menu changes would be made “soon.”

One recommendation the company is weighing is to add the McDouble to the Dollar Menu and to move the Double Cheeseburger from the value menu to the main menu.

Greg Watson, McDonald’s U.S. marketing vice president for McDonald’s U.S.A., said on Friday the company was still weighing potential changes to the Dollar Menu, which has been credited with luring customers to the No. 1 restaurant chain amid a sharp U.S. economic downturn.

“The recommendation to adjust the price of the Double Cheeseburger allows us to continue to provide the same great tasting burger our customers know and love, still at a great value,” Watson said. “No final decisions have been made. These are just recommendations at this time.”

The value menu changes would likely boost prices without denting consumer perception that McDonald’s prices are affordable, he said.

The J.P. Morgan analyst said the introduction of the McDouble as well as the Double Cheeseburger price increase could improve margins at company-owned restaurants and boost franchisee cash flows.

Stifel Nicolaus analyst Steve West said in a recent note that he expects the Double Cheeseburger price hike to be steeper. He expected its price to go to $1.29, the same price as McDonald’s chicken snack wraps.

McDonald’s is slated to report October sales on Monday, November 10.

November 9, 2008 - Posted by | Finance, News | , , ,

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