FastFood Stocks Fall On Fear Of McDonald's Led Price War

26th Feb 1997

Press Index

The stocks of McDonald's Corp., Wendy's International Inc. and Burger King parent Grand Metropolitan Plc fell in heavy trading Wednesday amid fears of an imminent fast-food price war.

McDonald's fell $2.375 to $44.875 and Wendy's slid $2.125 to $20.125 on the New York Stock Exchange, where the shares were the most active in late morning trading. Grand Met's American Depositary Receipts fell $1.125 to $30.50, also on the NYSE.

The Wall Street Journal reported Wednesday that McDonald's, in an effort to lift flagging sales, will launch its biggest discounting programme to date by cutting the price of a Big Mac to 55 cents from $1.90 with the purchase of french fries and a beverage.

McDonald's Vice Chairman Jack Greenberg will pitch the move, which could set off a price war, to franchisees on Thursday via closed circuit videocast, the report said.

The report cited an internal document that said "McDonald's pricing isn't competitive" and that price cuts could turn around "the declining momentum of sales, transaction and cash flow."

A majority of franchisees in each market must support the plan for it to be approved, the newspaper said, adding that Greenberg has been lobbying franchisees for support in recent days.

The report said the 55-cent package will rotate from Big Macs to the company's other sandwiches and also promises to deliver sandwiches within 55 seconds of an order.

"There is talk around the market that it costs a McDonald's franchisee 62 cents to make a Big Mac. A price war could hurt them in the short-term," one stock dealer said.

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