Many fast-food chains resorted to menu deals earlier this year to win back price-conscious customers. In May, McDonald’s launched a $5 four-meal package, a McChicken or McDouble, chicken nuggets, fries and a drink. Also in May, Wendy’s launched a $3 breakfast deal that included an egg and cheese sandwich and a serving of potatoes. Then nearly all of its other competitors followed suit.
Now, more and more chains are jumping on the meal deal bandwagon, while others are extending their promotions for at least a couple of months. In June, Burger King launched a $5 meal deal, and now the restaurant chain announced it will extend the deal through October. And starting this week through Aug. 25, customers with rewards memberships can get a King Jr. Meal when they spend $10. The company says the campaign is aimed at students heading back to school. Meanwhile, sandwich chain Jimmy John’s announced last week it would launch a $10 meal deal. Analysts say these deals are likely to continue because they help restaurants bring budget-conscious diners back to stores.
“It’s about creating added value”
Although inflation is easing, wallets are still tight in several categories. This continues to be true for eating out. According to the latest report from the Bureau of Labor Statistics, prices for food purchased out of the home have increased 27.2% since June 2019.
Rising labor costs are also forcing chains to raise their menu prices. A recently passed law in California requires fast-food workers to make $20 an hour. In response, Chipotle raised prices in the state by 6 to 7 percent.
In total, according to a May 2024 study by FinanceBuzz, 13 restaurants, including McDonald’s and Popeye’s, raised their menu prices by an average of 60% between 2014 and 2024. Brad Jashinsky, principal analyst at Gartner, told Modern Retail that fast-food chains were initially able to pass these rising costs on to customers without much resistance for a while.
Over time, however, some customers began to feel put off by these price increases, especially those who see fast food as a cheaper alternative to eating out. In the July earnings call, shortly after the $5 menu was introduced, McDonald’s executives acknowledged that low-income customers find the company’s prices too high. During the call, executives said they were taking a “forensic approach” in setting the new prices.
“Inflation was the catalyst for the price increases, and for a while it worked very well,” Jashinsky said. But fast-food restaurants began to worry when foot traffic dropped, Jashinsky said, causing them to compete for customers with menu deals.
Jashinsky also pointed to previous cases where fast food advertising was pushed when the economy hurt sales. The Great Recession was the last major example.
In 2009, McDonald’s introduced its breakfast budget menu, which helped the company generate revenue during the economic crisis thanks to millions of cash-strapped customers. Also in 2009, KFC announced the launch of its first-ever budget menu to boost flagging sales.
“I think these deals emphasize value,” Jashinsky said. “But you never want to be rushed into a promotion.”
An opportunity to gain loyalty
Phil Kafarakis, president and CEO of the International Foodservice Manufacturers Association, agreed that the expansion of value-priced meal offerings at all major fast-food operators is ultimately due to competition.
“If they don’t do it and everyone else does, they risk losing their competitive advantage,” Kafarakis said. But there are also risks, he said, such as customers getting used to deep discounts. It’s too early to say whether these deals will increase sales substantially, as some companies have not yet released their latest results. But so far, the results have been mixed.
At Yum Brands’ earnings call on August 6, CEO David Gibbs said quarterly sales trends in the U.S. improved compared to the previous quarter. Gibbs attributed the increase to special offers such as Pizza Hut’s $7 Deal Lovers. However, Yum’s profit fell 12% in the second quarter while store sales fell 1% year over year.
Kafarakis said tying discounts to their loyalty programs is a key differentiator from the big chains. Earlier this year, Taco Bell introduced its new Value Menu, which includes exclusive product promotions for online customers. In the announcement, Taco Bell CMO Taylor Montgomery said, “We’re introducing all-new ways to save on our menu and doubling down with exclusive digital offers, so expect more from us this year. We’re walking the talk when it comes to value, and we’re just getting started.”
“The value that goes both ways is that loyal customers are rewarded and become loyal to the brand,” he explained. The other initiatives, Kafarakis said, risk becoming operational gimmicks that only get people to visit the store during the promotional period.
Kafarakis said value-based marketing is likely to continue throughout the year and into the holidays as it continues to put pressure on people’s budgets. “I don’t see it ending quickly,” he said. “And yes, there is a risk that it will eat into margins if it’s not used tactically.”
