McDonalds, KFC and Pizza Hut have reported soft sales as customers reject inflated prices. That means franchises have to get creative.
In another sign consumers are wary to spend, they aren’t treating themselves to as much fast food.
Recent earnings reports from companies like McDonald’s, KFC and Pizza Hut show softer-than-expected sales, smaller transaction totals and reduced foot traffic in restaurants as customers rejected inflated menu prices.
One tool to win those customers back could be the tried and true value meal. McDonald’s is reportedly looking to introduce a $5 burger, fries and drink deal to its menu.
When fast-food menu prices started to surge in 2022, customers just sort of rolled with it. That’s partly because we were seeing rapidly rising prices everywhere, said restaurant analyst Sara Senatore at Bank of America.
But now?
“At this point, we’re starting to see disinflation,” she said — slowing price growth at the grocery store. “So consumers are no longer willing to accept steadily increasing prices,” she said.
Especially for a product we expect to be cheap. And at a time when people are feeling less spendy.
“Part of why you go to a chain restaurant is because you know exactly what you’re gonna get,” Senatore said.
And how much you’ll pay. But, Senatore said, low-income consumers in particular are fed up with being surprised by their fast-food bill at the drive-thru window.
Enter the budget meal.
“It’s becoming more of a dogfight now,” said Mike Zuccaro, an analyst with Moody’s.
He said fast-food value promotions have taken a hiatus these last few years. But now chains are scrapping over fewer customers. “So you come up with a package that will compete in this very challenging environment,” he said.
The hope is that a meal deal with fries and a drink will lure back customers who’ve reverted to cooking at home or brown bagging it at work.
“It’s really attracting consumers to come there and then order more stuff,” said Shubhranshu Singh, a professor at Johns Hopkins University. If customers are there just for the value meal, he said, that’s where promotions can backfire.
And he’s not sure how long these chains can offer cheap meals just to get people in the door. “Five-dollar meal cannot be a permanent thing on the menu because it’s just not sustainable,” he said.
With the inflationary pressures franchises are facing, Singh said the days of supercheap fast food might be behind us.
