More chains introduced new value offers this week as McDonald’s prepares to cut prices on its combo meals. Yet it comes as industry profitability remains lower than it was before the pandemic.
If the past few days are any indication, the restaurant chain value wars are going to last a while longer.
The pizza chain Little Caesars on Monday announced a deal in which customers can get two large one-topping pizzas at $4.99 apiece, a promotion highlighting the company’s NFL sponsorship.
The quick-service seafood chain Long John Silver’s introduced a lineup of baskets featuring fish, shrimp or chicken for $6 apiece.
Domino’s, meanwhile, brought back its “Best Deal Ever,” an offer of any pizza for $9.99 when ordered online, a deal the company had offered last month.
Chipotle announced a new “Build Your Own Chipotle” family-style meal which, while not explicitly a value offer, is being marketed as such.
That was just this week.
The restaurant industry’s value push promises to intensify in the coming months, as fast-food chains in particular struggle for traffic while a few casual-dining chains generate momentum with deals of their own.
That intensity could take on a new meaning next month, when McDonald’s starts pushing an $8 Big Mac Extra Value Meal offer along with promises of lowered prices on its combo meals.
As it is, the value push is more than a year old, having ignited last year when McDonald’s announced a $5 meal deal to ignite traffic.
The result of this value push at least so far has been mixed, and depends on the chain. Sales and traffic at major fast-food chains have been lagging all year. Quick-service chains that have reported their second-quarter same-store sales averaged a 0.61% decline. That followed an average first-quarter decline of 1.1%.
Even McDonald’s, which reported a 2.5% increase, effectively said that its second quarter was weak after a strong start, led by its Minecraft Movie Meal promotion.
“Real incomes are down with the low-income consumer,” McDonald’s CEO Chris Kempczinski told analysts earlier this month. “That is absolutely going to put pressure on visits in the QSR industry.”
Casual-dining chains, on the other hand, have generated positive results with their focus on value. Applebee’s, BJ’s Restaurants and Chili’s have all thrived in part on marketing the prices of their combo meals, which is putting pressure on competitors, not to mention the fast-food business.
The question for the restaurant industry is whether it can afford an extended value and pricing push.
Industry profitability remains pressured since the pandemic. The median limited-service restaurant averaged 4% income before taxes, according to the National Restaurant Association’s data abstract. That’s lower than it was before the pandemic, according to the association.
It’s worse at full-service restaurants, where median income is 2.8%.
A continued push to generate traffic through lower prices may not make that profitability any better.
Source https://www.restaurantbusinessonline.com/financing/get-ready-extended-fast-food-value-war
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