How Will Price Wars Change Restaurants and Fast-Food 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.