Breakfast for $1 tests price elasticity of demand

McDonalds is taking no chances on an economic recovery in 2010 - it is pushing ahead with an aggressive sales promotion offering popular breakfast items for just $1.

The promotional strategy is described in the Telegraph here.

McDonalds will launch its breakfast Dollar Menu across the USA in January 2010, as it attempts to sustain the volume of customers visiting its stores, after US sales had been hit by intensive competition and a 10 percent unemployment rate.US sales at established McDonald’s restaurants fell for the second month in a row in November 2010.

McDonalds has done some test marketing on the sales promotion by offering breakfast items for $1 each at restaurants in Chicago and other markets for several months.

Many investors have worried what impact unemployment would have on McDonald’s high-margin breakfast business which accounts for around 25% of its sales in the US. Investors will find out in early 2010 whether the new pricing strategy is working.