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McDonald's Is Making A Big McStake

27 May, 2004 By: Thomas K. Arnold

I shook my head when our marketing director walked into my office and showed me a USA Today story headlined “McDonald's Wades Deeper Into DVDs.”

Apparently the fast-food chain, whose fatty Big Macs and killer fries aren't flying out the door the way they once were due to an increasingly health-conscious environment, is once again looking to video to shore up its bottom line.

According to the USA Today piece, McDonald's plans a summer-long test of DVD rental kiosks in all 105 of its Denver restaurants — which comes on the heels of smaller trials in Washington and Las Vegas. Based on the results, “McDonald's hopes to become the first fast-food chain to rent top DVDs nationally.”

Plans call for the top 30 DVDs to be rented at Redbox kiosks, inside or outside restaurants. The overnight rental rate is a buck, and DVDs may be returned to any McDonald's.

This is hardly the first time McDonald's has tried to undercut its way into the home video market. Back in the early 1990s, there was an uproar when McDonald's hatched a plan to use videos as premiums, selling top titles for as little as $5 each at a time when sellthrough was still in its infancy. Retailers cried foul over the sweetheart deals that allowed McDonald's to sell cassettes at so low a price. They also argued that these promotions would devalue videos and make it more difficult for traditional retailers to not only sell cassettes for $20, but also to justify charging customers around $100 for lost or damaged rental cassettes.

In some cases, studios backed down, but over time McDonald's kept at it, although the results were unspectacular. The cheapo promotions didn't devalue video, nor did they make the fast-food chain the new Blockbuster.

I can only surmise that McDonald's, hit hard by the general malaise affecting the fast-food business, is looking toward DVD as salvation — just as the mass merchants are using hot new DVD releases as loss leaders to drive people into their stores in the hopes that they'll buy things like toothpaste and toilet paper with comfy profit margins.

But I think McDonald's approach is all wrong. By renting DVDs, McDonald's is hoping to boost return trips to its restaurants. And yet there's a far better way to get people to come back that the great minds at corporate headquarters probably haven't thought about:

Better food. I used to work there as a teenager and let me share a little trade secret: To keep costs down, at least back then, the Big Mac used “reconstituted” onions rather than fresh ones. I was once in charge of doing the “reconstituting,” meaning I scraped dried onions that looked like the stuff that collects under your fingernails onto a countertop, added water and voila! — spread the stuff on the bun. I haven't eaten a Big Mac since.

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