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[Recession Case Study] McDonald’s “Dollar Menu” Campaign during 2008 Great Recession

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All businesses have concerns when an economic downturn hits. Typically, sales (or revenues) dry up, and businesses begin to pull back on marketing (investment or people). However, the businesses who don’t reduce marketing and take advantage of competitors pulling back will see long-lasting gains.

Here’s McDonald’s story.

Background

The Financial Crisis of 2008, otherwise known as “The Great Recession,” was a severe economic downturn that affected consumer spending and businesses across the United States. The crisis was triggered by the collapse of the housing market and the subsequent failure of several major financial institutions. As a result, many companies struggled to drive sales and maintain market share as consumers faced financial uncertainty and reduced spending power.

Objective

McDonald’s, one of the largest fast-food chains in the world, sought to increase sales and maintain market share during this difficult economic period. The company aimed to attract cost-conscious consumers who were looking for affordable meal options during the crisis.

“[I]n a recession, people eat out less and at home more frequently. And when they eat out, they eat at cheaper places. McDonald’s is so cheap, efficient, pervasive, and convenient that it was a viable alternative to casual restaurants like Ruby Tuesday and to cooking at home.” [Source: Slate]

Strategy

In response to the Financial Crisis, McDonald’s launched their “Dollar Menu” marketing campaign, which offered a variety of menu items for just $1. The concept was not born in 2008. If anything, it was an old concept created in 2002; however, ‘value’ became intrinsically more important during the Great Recession. McDonald’s also introduced new menu items that were specifically priced at $1, such as the McChicken sandwich and the McSkillet breakfast burrito. By offering a variety of menu items at a low price point, McDonald’s was able to appeal to cost-conscious consumers who were looking for affordable meal options during the crisis.

They took advantage of lower TV rates, as other advertisers pulled back in their investments, and went bold on TV and many other marketing channels (radio, print, in-store, etc.) [source: Mint Life]. Looking at McDonald’s Annual Reports (10-K), they invested more in advertising than 2003-2006. And, compared to their competitors like Burger King and Taco Bell in 2009, McDonald’s invested 3.2x and 3.6x more in advertising, respectively.

McDonald’s saw the opportunity in the challenge of the Great Recession. As others pulled back in marketing investment, they took advantage of cheaper rates and continued to invest.

Source: McDonald’s Annual Reports (10-K)
Note: Advertising investment in 18 different media including television, magazine, internet, radio, newspaper, freestanding insert coupons, and outdoor advertising. Data source: Nielsen (2009, 2012). Source: Fast Food Marketing, 2012

Results

The “Dollar Menu” campaign was a huge success for McDonald’s, driving sales and increasing traffic to the restaurants during a difficult economic period. The campaign also received widespread media coverage and positive consumer feedback, further boosting the brand’s reputation. “Burger King shares were down more than 31% since the end of 2008 – while McDonald’s shares rose nearly 18% during the same period” [source: Mint Life]. Similarly, Slate noted that “McDonald’s sales growth in 2008 was greater than in 2006 and 2007. While many restaurants scaled back, it opened nearly 600 stores in 2008. And the chain has notched same-store-sales growth in each of 2009’s first seven months.” “The success allowed McDonald’s national advertising fund to approve “backing the chain’s standard dollar menu during the first half of [2020]” [source: WSJ].

In addition, McDonald’s saw another opportunity: breakfast. “High unemployment, which stands at 10.2%, hits breakfast sales particularly hard as fewer workers commute and stop in for breakfast. Some of the fast-food industry’s most frequent visitors — teenagers and men between the ages of 18 and 35 — have an even higher rate of joblessness” [source: WSJ]. Thus, they “spent money promoting a higher-margin good that could appeal to a new class of trading-down consumers: coffee” [source: Slate].

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