Can They Really Make Money Off the Dollar Menu?

McDonald's "Dollar Menu." Subway's "$5 Footlong." Quiznos's "Million Sub Giveaway." As the U.S. tries to climb out of the recession, these bargain fast-food meals have become familiar subjects of TV ads and radio jingles -- and for many consumers, they are some of the best food values around.
 
But few of the hungry diners who bite into those discounted subs and burgers realize that their cut-rate meals can be a flashpoint between big fast-food companies and the franchise owners who operate local stores.

How much money are local stores making -- or losing? To find out, we surveyed franchisees about some popular current and recent promotions. On top of paying royalties (of about 11% to 12% of sales) to the franchisor, franchisees often bear the brunt of a promotion's cost. We also asked franchisees about their wholesale costs for food, as well as labor, rent and utilities, among other things. Prices and menu for a particular promotion also vary depending on location.

Baskin Robbins

Promotion: 31 Cent Scoop Night - This annual promotion occurred between the hours of 5pm and 10pm on April 29.

What they normally charge: $2.29 (one single scoop)

Promotion Price: 31 cents

Bottom line for restaurant: Loss of roughly $1.45 a scoop

Baskin-Robbins' 31 Cent Scoop Night is done in the name of charity. Not only does the company donate $100,000 to NVFC National Junior Firefighter Program, but it's also quite generous to ice cream lovers as well. One scoop (of any flavor you choose) for just 31 cents compared to the regular price of $2.29 at one location in Wisconsin is a pretty sweet deal. Franchisees don't feel much of that goodwill, however: Beyond the approximate 60-cent cost of the ice cream, a spoon and a cup, store operators also pay another $1.15 per scoop for rent, utilities and labor, estimates one store owner in Wisconsin. Baskin-Robbins spokeswoman, Danielle Sullivan, says the company's own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to give specific figures. She also declined to comment further on costs and profits.

Little Caesars

Promotion: HOT-N-READY Pizza - Get one 14-inch large cheese or pepperoni pizza for $5 at participating locations.

Pre-promotion price: $10.99 (one large one-topping pizza)

Promotion Price: $5

Bottom line for restaurant: Profit of roughly 90 cents a pizza

Introduced six years ago, Little Ceasars HOT-N-READY Pizza promotion offers 14-inch cheese and pepperoni pies for just $5. Even though some stores charge about 55 cents more than that, margins are still slim. The cost of a single pizza's ingredients and packaging amounts to about $3.50, according to a franchise operator in Georgia. Tack on another 60 cents for rent, labor and utilities and franchisees earn roughly 90 cents a pie. Little Caesars' spokeswoman Colleen Kmiecik says the company's own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to provide specific figures. She also says the company provides long-term profitability information to its franchisees to show how the promotion will boost their bottom line, but would not provide further details.

McDonald's

Promotion: Dollar Menu - McDonald's customers may purchase a number of items, including French fries, an ice cream sundae, a four-piece chicken nuggets and a double cheeseburger for a dollar each.

Pre-promotion price: $1.50 (double cheeseburger)

Promotion Price: $1

Bottom line for restaurant: Profit of roughly 6 cents a burger

The McDonald's Dollar Menu may be the best value in town, but some franchisees find the six-year-old promotion hard to stomach. While food and packaging costs just 45 cents for a double cheese burger, franchisees also have to pay for rent, labor and utilities. In total, a promotional price of just $1 leaves store operators with a measly 6 cents of profit, according to a franchisee in Florida. Of course the markup on fountain drinks and French fries is typically pretty high. However, many consumers these days are forgoing such add-ons. McDonald's did not immediately return phone calls and emails seeking comment.

Quiznos

Promotion: Million Sub Giveaway - The first million people to register for Quiznos's Q Club received a coupon good for any sandwich. (Certificates for this promotion expired by March 15, 2009.)

What some stores normally charge: $5.29 (one six-inch chicken sandwich)

Promotion Price: Free

Bottom line for restaurant: Loss of roughly $2.25 a sandwich

"The response to Quiznos's Million Sub Giveaway was tremendous -- with all one million free sub certificates requested within three days of the launch," says a Quiznos spokesperson. While Quiznos claims to have reimbursed franchise owners for food and paper costs, which amount to roughly $2.25 for, say, a chicken sandwich, other costs including rent, utilities and labor fell to individual franchisees -- leaving some franchisees with an average loss of roughly $2.25 per sandwich, according to a franchisee in Maryland.

Subway

Promotion: $5 Footlongs - The chain offers any regular sub for $5. (Which subs getting this price tag will vary by store.)

What they normally charge: $5.89 (12-inch turkey sub)

Promotion Price: $5

Bottom line for restaurant: Profit of roughly $1.20 a sandwich

The $5 Footlong is a catchy marketing slogan but the discounting on the turkey sub isn't as deep as some other big fast food promotions. For Subway operators you can still eke out a decent per item profit -- and hope the diner is thirsty for a large, high-margin soda. To make the footlong turkey sub, the ingredients cost $1.65 at a New York location. Mack Bridenbaker, a Subway spokesman, declined to discuss the economics of hosting the company's $5 footlong promotion.