Dive Brief:

• McDonald’s franchisees in some U.S. markets have ditched Dollar Drinks, a long-standing $1 drinks promotion, The Wall Street Journal reported last week. Some operators are raising beverage prices to offset the impact of sustained food inflation, though most stores still offer $1 drinks.
• McDonald’s identified inflationary pressures as a threat to the company’s bottom line in its most recent 10-Q, adding the company has limited ability to address price risks.
• The burger chain gave owners permission to drop the $1 drinks promotion in January, according to The Journal. As of May, some franchisee groups have shifted to market the value menu instead. 

Dive Insight:

Franchisee cooperation in promotion and pricing is an important part of McDonald’s overall business strategy, according to the company’s most recent 10-Q.

“Our success also relies on the willingness and ability of our independent franchisees and affiliates to implement major initiatives, which may include financial investment, and to remain aligned with us on operating, value/promotional and capital-intensive reinvestment plans,” the company said in the SEC filing.

Franchise owners have chafed at some of McDonald’s recent changes, including a proposed inspection scheme, called Operations PACE, that franchisees feared would strain labor and hurt retention and operations. A number of operators have also left the company in recent months, and proposed new guidelines and changes to the evaluation of new owner/operators have ruffled feathers. These changes could make it harder for franchisees to designate spouses and children as “heirs” by subjecting “heirs” to the same scrutiny as other franchise applicants.

McDonald’s restaurant coops in 16 of 56 U.S. markets have moved to advertise value meals instead of dollar drinks, according to The Wall Street Journal. Some owners have abandoned the promotion altogether and are raising the price of sodas. McDonald’s has promoted $1 cold drinks year-round since 2017, after the offering began as a summertime promotion around 2008.

“Customers can always count on McDonald's for great value, which remains an important part of our marketing strategy. Franchisees set prices and have the flexibility to create promotions that will drive demand locally,” McDonald’s said in a statement emailed to Restaurant Dive.

Inflationary pressures, according to McDonald’s most recent 10-Q, more than offset sales increases at company stores, though the SEC forms didn’t indicate to what extent franchisee sales had been impacted. McDonald’s highly franchised business model, and its system of local market cooperation on pricing and promotions, gives the chain some flexibility in regional markets.

Other major restaurant brands have raised prices or abandoned longstanding promotions recently due to inflation, as well. Little Caesars, for example, raised the price of its Hot-N-Ready pizza deal by $0.55 early this year, while Chipotle’s menu prices increased about 10% from 2020 to early 2022.