May 13, 2024
Photo by Yucel Moran on Unsplash
How Will Fast-Food Price Wars Change Restaurants and Chains?
The landscape of dining out is changing, with fast food no longer being the clear-cut choice for budget-conscious consumers. In places like New York City, prices for fast-food staples like a McDonald’s Big Mac meal or a Burger King Whopper combo have increased, reaching nearly $14. In response, chain restaurants are rolling out enticing promotional deals to lure customers, such as Chili’s “3 for Me” combo, offering an entrée, side, appetizer, and drink for $10.99, along with higher-quality burgers and food at nearly the same prices as fast-food retailers.
Additionally, Applebee’s, Red Lobster, and Outback Steakhouse have introduced popular value-driven meal deals to combat rising prices. Franchise owners acknowledge the delicate balance between increasing prices and retaining customers’ loyalty, with many chains vowing to remain cautious with pricing strategies. As fast-food prices continue to rise, chain restaurants are finding success by offering familiar favorites with better value, challenging the dominance of traditional fast-food joints.
However, the sustainability of discount meal deals remains a concern for some chains, with Red Lobster’s recent bankruptcy considerations serving as a cautionary tale. According to the chain last November, its endless shrimp deal, originally priced at $20, led to an unexpected $11 million loss in the third quarter of 2023. Red Lobster has since increased the price to $25 due to these financial struggles.
As the industry grapples with pricing pressures and changing consumer preferences, the battle for value-driven dining experiences is heating up.
Recent earnings calls with restaurant executives revealed a challenging landscape for the industry. Diners, described as “price weary,” are dining out less frequently, prompting a cautious approach to price hikes by several chains. Fast-food restaurants like McDonald’s, Burger King, and Wendy’s are experiencing sluggish growth in comparable sales, with some even witnessing declines. Starbucks, in particular, faced its weakest performance outside of major economic downturns like the pandemic, according to William Blair analyst Sharon Zackfia.
To make matters worse, franchisees in California are expressing concerns about being stretched thin financially due to the increased minimum wage.
Despite challenges, some chains like Popeyes, Domino’s, and Wingstop managed to maintain growth in same-restaurant sales.
Shake Shack, having raised prices already this year, announced no further increases planned for 2024. Wendy’s CFO Gunther Plosch emphasized a focus on conservative pricing strategies, while McDonald’s CFO Ian Borden pledged to exercise prudence in any future price adjustments.
Recently, McDonald’s focused on revamping its burger offerings with over 50 changes earlier this year to include softer buns, better cheese melt, and enhanced flavors. It was also recently revealed on social media how the fast-food company offered a secret value menu, including a potential $12 “Dinner Box,” but the actual menu varied from franchise location to location. In turn, this ended up frustrating many consumers and might have had a slight negative effect on the fast-food brand.
Meanwhile, the Wendy’s Biggie Bag, which was revamped in 2022, has gained plenty of traction for its affordability. Priced at $5, the meal deal includes a sandwich, four-piece chicken nuggets, junior fry, and small soft drink. Consumers can choose from sandwich options such as Jr. Bacon Cheeseburger, Crispy Chicken Sandwich, or Double Stack. Alternatively, for an additional dollar, patrons can upgrade to a Crispy Chicken BLT or Bacon Double Stack. The deal allows for the substitution of the drink with a junior, small, or medium Frosty for a small fee.
Furthermore, Burger King is currently offering multiple limited promotions online and across a wide variety of states. At select U.S. locations, the $1 Your Way Menu presents the Bacon Cheeseburger, Chicken Jr., Value fries, and Value fountain drink for just $1 each, though prices may vary by market, and the offer excludes delivery. The Wednesday Deal, exclusively available on the BK App and bk.com, unveils a new weekly offer at participating U.S. restaurants. Additionally, customers can take advantage of the 2 for $5 Deal, allowing them to choose two of the following items: Whopper, Big Fish, Original Chicken Sandwich, and Chicken Fries.
McDonald’s pales in comparison with its current deals menu online. However, the company plans to reintroduce a $5 meal deal in the U.S. to attract budget-conscious customers amid inflation. The deal may include a choice of a McChicken or a McDouble, along with fries and a drink. Franchisees are concerned about profitability, especially in states with higher minimum wages, but McDonald’s has secured support from Coca-Cola Co. to mitigate potential losses. CEO Chris Kempczinski highlighted the importance of affordability in response to consumer concerns about prices.
BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
David Biernbaum
Founder & President, David Biernbaum & Associates LLC
Kai Clarke
CEO, President- American Retail Consultants
Recent Discussions
Discussion Questions
Do you think a $5 meal deal will significantly help McDonald’s?
Why do you think Popeyes, Domino’s, and Wingstop have continued to see growth?
Do you think the lines have blurred or been removed between fast-food and traditional restaurants?
Poll
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In one of our latest consumers surveys, 72.4% of consumers agreed with the statement that “fast food is now too expensive to be a ‘cheap’ treat”. This is one of the reasons why volumes in the QSR segment are under intense pressure. Some consumers have cut back, and many are thinking more carefully about where they dine. This has led to some interesting trends. Among financially squeezed consumers pizzas are often better value than burgers because they can be shared easily among more people. Among middle-income consumers, the cost differential between QSR and a casual restaurant has narrowed so some are opting to pay a bit more and get the better, more formal experience. QSR players like McDonald’s need to reengineer menus to offer better value for money if they want to stem the tide of losing customers.
Commodity foods will be the subject of price wars at fast food chains and restaurants. There are hypothetical examples such as McDonald’s, Wendy’s, Burger King, Taco Bell, Arby’s and all commodity pizza chains, as well as mid-level chains similar to Culvers, Panera, Raising Cane’s, Chipotle, Five Guys, Cracker Barrel, Denny’s, and TGI Friday’s.
No specific plans have been shared with me for any of the restaurants mentioned above. These are only examples of category types.
To some extent, every restaurant engages in price wars, if no other way, maybe in the form of promotions or specials.
Nevertheless, a price war occurs when at least two businesses are constantly comparing their prices with those of their competitors.
Price wars are likely, even though they are Band Aid solutions, not necessarily money-makers, with restaurants, especially fast food, struggling because of Bidenomics, salary pressures, and escalating menu prices.
You may want to lower your prices to attract your competitor’s customers, but if you keep lowering them until your profits begin to suffer, it may be time to rethink your strategy.
A price war can affect any restaurant, regardless of whether it’s an upscale establishment or a fast-food joint. However, most premium quality restaurants are exempt from these wars. Ruth’s Chris, Capital Grille, Fleming’s, Maggiano’s, Morton’s, etc., are some hypothetical examples.
In my opinion, mid-level restaurant chains such as IHOP, Applebee’s, Cheesecake Factory, Outback, and Red Robin will not be affected by the price wars.
If I owned a restaurant chain, I would prefer to avoid this war, and brand my business on quality, dining experience, reliability, customer service, and unique dishes.
When quality matters to consumers, you don’t need to engage in price wars. The cheaper the food, the more likely it is that price wars will occur.
How will price wars affect the marketplace? There are two ways in which I think. One is the price that customers commit to memory on an everyday basis. Second, advertised promotions. There is a greater likelihood of the latter being used.
The war between the chains won’t affect the share of the market between the restaurants, but will bring more customers to restaurants at the expense of supermarkets since all chains in a given category will compete with each other. Db
In general,QSR’s are finally listening. You have lost your mid and value customers. They may have accepted ok food quality for a while but now that prices increased and quality stayed the same, customers are not willing to pay for the quality because they don’t see the value. So promotions may help offset this, but it will be a while before we see if this can bring back the mid and value customers.
This column seemed to have a little trouble keeping its focus, starting out with the – not credible IMHO – claim that QSR prices are being matched by full service options, then reversing course and giving a long list of low prices at the former. I’ll go with the reversal: full service offers little threat of dethroning fast food among the budget conscious…a few bankruptcy inducing promos notwithstanding.
There is no debating that the dramatic price increases at QSRs has been hard to swallow for price conscious consumers. Oftentimes, you can get a comparable or better meal at a casual dining restaurant with a more pleasant dining atmosphere than eating in your car. Value-priced promotions are becoming a necessity for QSRs to woo customers back to their chains.
This is just a simple example of Marketing 101. Product, price, performance and place. All of these fast food chains have survived by recognizing that their customer needs value in an ever changing market. It is adapt or perish in their rapidly moving customer landscape. For all of these restaurants, the customer looms as the defining decider, especially between different tastes in multiple QSR markets.
The restaurant industry—at all levels—is a super-competitive industry. Fast casual and fast food are competing on taste AND price. Restaurant groups like Appblebee’s have cracked the code on low-priced options that give consumers/guests choices between traditional fast casual and something a little more upscale with a higher-level experience.
That said, when customers’ criteria are a fast and cheap meal, they know where to go. You must earn the reputation you seek. That means you must be laser-focused on what you want to be known for. Offerings outside of that can potentially confuse the customer.
The winner in the Fast food casual dinning price convergence is the C-store vertical. With prices increasing in the fast food industry the main differentiator between casual dinning and fast food is speed. With the advancement in quality, freshness and self-service ordering in many C-store chains they continue to be seen as an improvement in value and speed over the traditional Fast Food chains.
There are rarely any winners in retail price wars, I don’t expect restaurants and fast food chains to be any different.
Still, there are several elements that restaurants and fast food are navigating that are compelling enought to take some form of action: minimum wage increases, inflationary economy, decreased spending on dinning/take out, changing consumer preferences and more.
While price is generally a quick fix, it’s also not sustainable long term. Some strategies that restaurants can use to complement current efforts:
Innovation: McDonald’s is moving in the right direction with enhanced offerings and testing new formats to keep up with changing consumer preferences.
Trade Up: Adding options to value menus for an additional dollar purchase, like Wendy’s has, is a good way to deliver value while also driving up register receipts.
OmniChannel: We know omnichannel customers are most valuable. Burger King is smart to tap into their app to reach new customers and reward existing customers to build loyalty.
Ultimately, there is no magic bullet or one-size-fits-all winning strategy when price and value are core drivers of revenue. But restaurants and fast food chains can keep one pace ahead by being innovative in their offerings and formats; creating nominal trade-up options to value menus that inspire demand and capture impulse; and by driving omni channel sales to maximize customer value.
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In one of our latest consumers surveys, 72.4% of consumers agreed with the statement that “fast food is now too expensive to be a ‘cheap’ treat”. This is one of the reasons why volumes in the QSR segment are under intense pressure. Some consumers have cut back, and many are thinking more carefully about where they dine. This has led to some interesting trends. Among financially squeezed consumers pizzas are often better value than burgers because they can be shared easily among more people. Among middle-income consumers, the cost differential between QSR and a casual restaurant has narrowed so some are opting to pay a bit more and get the better, more formal experience. QSR players like McDonald’s need to reengineer menus to offer better value for money if they want to stem the tide of losing customers.
Commodity foods will be the subject of price wars at fast food chains and restaurants. There are hypothetical examples such as McDonald’s, Wendy’s, Burger King, Taco Bell, Arby’s and all commodity pizza chains, as well as mid-level chains similar to Culvers, Panera, Raising Cane’s, Chipotle, Five Guys, Cracker Barrel, Denny’s, and TGI Friday’s.
No specific plans have been shared with me for any of the restaurants mentioned above. These are only examples of category types.
To some extent, every restaurant engages in price wars, if no other way, maybe in the form of promotions or specials.
Nevertheless, a price war occurs when at least two businesses are constantly comparing their prices with those of their competitors.
Price wars are likely, even though they are Band Aid solutions, not necessarily money-makers, with restaurants, especially fast food, struggling because of Bidenomics, salary pressures, and escalating menu prices.
You may want to lower your prices to attract your competitor’s customers, but if you keep lowering them until your profits begin to suffer, it may be time to rethink your strategy.
A price war can affect any restaurant, regardless of whether it’s an upscale establishment or a fast-food joint. However, most premium quality restaurants are exempt from these wars. Ruth’s Chris, Capital Grille, Fleming’s, Maggiano’s, Morton’s, etc., are some hypothetical examples.
In my opinion, mid-level restaurant chains such as IHOP, Applebee’s, Cheesecake Factory, Outback, and Red Robin will not be affected by the price wars.
If I owned a restaurant chain, I would prefer to avoid this war, and brand my business on quality, dining experience, reliability, customer service, and unique dishes.
When quality matters to consumers, you don’t need to engage in price wars. The cheaper the food, the more likely it is that price wars will occur.
How will price wars affect the marketplace? There are two ways in which I think. One is the price that customers commit to memory on an everyday basis. Second, advertised promotions. There is a greater likelihood of the latter being used.
The war between the chains won’t affect the share of the market between the restaurants, but will bring more customers to restaurants at the expense of supermarkets since all chains in a given category will compete with each other. Db
In general,QSR’s are finally listening. You have lost your mid and value customers. They may have accepted ok food quality for a while but now that prices increased and quality stayed the same, customers are not willing to pay for the quality because they don’t see the value. So promotions may help offset this, but it will be a while before we see if this can bring back the mid and value customers.
This column seemed to have a little trouble keeping its focus, starting out with the – not credible IMHO – claim that QSR prices are being matched by full service options, then reversing course and giving a long list of low prices at the former. I’ll go with the reversal: full service offers little threat of dethroning fast food among the budget conscious…a few bankruptcy inducing promos notwithstanding.
There is no debating that the dramatic price increases at QSRs has been hard to swallow for price conscious consumers. Oftentimes, you can get a comparable or better meal at a casual dining restaurant with a more pleasant dining atmosphere than eating in your car. Value-priced promotions are becoming a necessity for QSRs to woo customers back to their chains.
This is just a simple example of Marketing 101. Product, price, performance and place. All of these fast food chains have survived by recognizing that their customer needs value in an ever changing market. It is adapt or perish in their rapidly moving customer landscape. For all of these restaurants, the customer looms as the defining decider, especially between different tastes in multiple QSR markets.
The restaurant industry—at all levels—is a super-competitive industry. Fast casual and fast food are competing on taste AND price. Restaurant groups like Appblebee’s have cracked the code on low-priced options that give consumers/guests choices between traditional fast casual and something a little more upscale with a higher-level experience.
That said, when customers’ criteria are a fast and cheap meal, they know where to go. You must earn the reputation you seek. That means you must be laser-focused on what you want to be known for. Offerings outside of that can potentially confuse the customer.
The winner in the Fast food casual dinning price convergence is the C-store vertical. With prices increasing in the fast food industry the main differentiator between casual dinning and fast food is speed. With the advancement in quality, freshness and self-service ordering in many C-store chains they continue to be seen as an improvement in value and speed over the traditional Fast Food chains.
There are rarely any winners in retail price wars, I don’t expect restaurants and fast food chains to be any different.
Still, there are several elements that restaurants and fast food are navigating that are compelling enought to take some form of action: minimum wage increases, inflationary economy, decreased spending on dinning/take out, changing consumer preferences and more.
While price is generally a quick fix, it’s also not sustainable long term. Some strategies that restaurants can use to complement current efforts:
Innovation: McDonald’s is moving in the right direction with enhanced offerings and testing new formats to keep up with changing consumer preferences.
Trade Up: Adding options to value menus for an additional dollar purchase, like Wendy’s has, is a good way to deliver value while also driving up register receipts.
OmniChannel: We know omnichannel customers are most valuable. Burger King is smart to tap into their app to reach new customers and reward existing customers to build loyalty.
Ultimately, there is no magic bullet or one-size-fits-all winning strategy when price and value are core drivers of revenue. But restaurants and fast food chains can keep one pace ahead by being innovative in their offerings and formats; creating nominal trade-up options to value menus that inspire demand and capture impulse; and by driving omni channel sales to maximize customer value.