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McDonald's cuts Angus burgers as beef costs rise (+video)

McDonald's cuts Angus burgers from its menu, realizing that for McDonald's customers, a $5 burger can't compete with a $1 burger. Although McDonald's cuts Angus burgers now, chain says they may 'play a future role.'

Beef costs rise in the US
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McDonald's is cutting the Angus burger from its menu.

The Oak Brook, Ill.-based company had said earlier this year that it was evaluating whether to continue selling the Angus Third Pounders, which were introduced in 2009 and are among the chain's priciest items. The company also said at the time that it was it was cutting Chicken Selects and Fruit & Walnut Salad.

The changes come as McDonald's looks to keep up with shifting tastes, even as it underscores the affordability of its food. The website BurgerBusiness.com, which reported that the burgers were being dropped earlier Thursday, also said that it learned from McDonald's franchisees that the company intends to expand its line of lower-cost Quarter Pounders in coming months, including an option with bacon.

At a time when the restaurant industry is barely growing, McDonald's has been playing up its Dollar Menu in ads to boost sales and steal customers away from competitors. Even if that hurts profit margins, executives say the strategy is critical to gaining market share and ensuring the long-term health of the company.

But Richard Adams, who consults McDonald's franchisees, said that the Dollar Menu has also made the Angus burger a less attractive option at around $4 to $5.

"When you can get four or five burgers off the Dollar Menu, nobody's going to buy the Angus burger," he said. "The Dollar Menu has become a real problem for these chains."

Another problem was that McDonald's wasn't able to raise prices on the Angus burgers, even as its own costs for beef continued to rise, said Howard Penney, a restaurant analyst with Hedgeye Risk Management. He said the chain didn't have that kind of "pricing power," meaning its customers wouldn't be willing to pay more than a certain amount for its food.

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