Fast Food Value Menu Wars: Chains Compete for Customers

Fast food chains are reviving value menus to attract cost-conscious consumers amid rising prices and declining sales.

### Fast Food Chains Revive Value Menus Amid Price Concerns
* 🍔  Fast food customers are pushing back against rising prices, prompting chains like McDonald's, Burger King, and Wendy's to **reintroduce value meals**.
* 💰  McDonald's is set to launch a special **$5 value menu** next month, while both Wendy's and Burger King will also offer their own **$5 meal deals**.
* 📉  The industry has seen a significant decline in same-store sales, with McDonald's reporting a **0.7% drop** in Q2 2024, marking the **first decline since 2020**.
* 💸  Since 2019, costs in U.S. fast food restaurants have **surged by 40%**, contributing to a **27% increase in prices for food away from home** as of August 2024.
* ⚖️  While value menus are designed to **attract customers back to fast food**, they pose challenges for franchisees due to **reduced profit margins from lower prices**.
* 🔄  McDonald's has decided to **extend its value menu** beyond its initial seasonal offering, indicating a shift towards a **more permanent value program** to maintain customer interest.
* 📊  Analysts predict that while traditional value menus may fade, meal deals such as **Wendy's four-for-four** and **Taco Bell's Cravings box** will likely remain popular as companies compete for **market share**.
* 🤝  The ongoing "**value menu war**" could ultimately benefit the fast food industry by encouraging competition and drawing consumers back to restaurants instead of grocery stores.

With fast food customers revolting over higher prices, chains like McDonald's, Burger King, and Wendy's are bringing back the value meal. Consumers are continuing to collide with companies over higher prices. McDonald's is rolling out a special $5 value menu next month. Wendy's and Burger King both launch $5 value meals of their own. Restaurants are hoping to win back customers who have been turned off by high prices and turn to grocery stores for meals. McDonald's, Taco Bell, Burger King, and Wendy's have unveiled or revived meal deals with a $5 or less price tag. Find out which extra value meal is 2.99. Go to your local McDonald's. It's a familiar playbook that fast food chains have used in the past, and the competition has sparked what some are calling the value menu war. Causing this, you know, quote, war could actually be helpful for them and it might actually help the entire

fast food industry. And this has always been an industry where value is critically important. We stepped away from that or backed away from that a little bit during the pandemic and in the years subsequent because spending was robust, because there was a lot of inflation in the commodity complex. But now we're seeing what I would characterize as a little bit more of a return to normal. So what has led to the revival of the value menu and are lower prices here to stay? With the price of fast food skyrocketing, cash-strapped consumers have pulled back on their restaurant spend. You go back to where we were in 2019. Our costs in the US have gone up 40% in our restaurants since 2019. Costs are up 40%. Prices are up? Pricing's pricing is up correspondingly. As of August 2024, prices for food away from home rose over 27% since 2019.

In the US, McDonald's same-store sales fell 0.7% in the second quarter of 2024 compared to the previous year. The first time domestic same-store sales have fallen since 2020. Other chains felt the same pressures in the US in the second quarter of 2024. Burger King saw same-store sales decline by 0.1%, and KFC's fell 5% compared to the previous year. Higher wages have also been a factor. Labor costs in states like California and New York further pinched tight margins. Well, I would consider the $5 menu sort of chapter one of a multi-chapter value playbook that we're going to be writing. And that is continued through the end of August. McDonald's has said it's seeing traffic increase as a result, and investors are buying in. The company's stock has been moving up since reporting earnings in late July. Taco Bell led the value menu wars, launching its cravings menu back in January.

Value is working for them, but it's really, again, to quote McDonald's, it's a knife fight out there. The value meals are only an entry point to customers to return, and potentially buy more items not found on the discounted menu. Fast food typically does better during economic downturns, but the sharp increase in prices over the years has made fast food meals a luxury. But value menus can be tough on franchisees because simply lowering the prices will equate to less profit. A McDonald's franchisees advocacy group wrote in a letter obtained by CNBC to the chain, saying the fact remains that in order to provide the consumer with more affordable options, they must be affordable to the owner operators. The discount pricing may be a boon for customers, but not so much for franchisees. Franchisees tried to push back against the value menu rollout, citing reduced costs would further hurt their already tight profit margins. Well.

You know, McDonald's is a big family, and it has been around for 60 years. It's prided itself on its success on this three-legged stool between suppliers, the brand, and of course, the vital franchisees. And so, in every big family, you have disagreements. But this debate, this internal debate, has yielded a great result for the brand. And that is us being in the forefront of value. Franchisees have recognized, and the fact that they voted to continue it is recognized that the vast majority of franchisees can make money on these meal bundles, and in particular, are seeing incremental transactions, incremental sales from that. In addition, they're looking at other value constructs that will be more of a permanent solution. So, there's a lot of gates to go through here. So, whether it's buy one, get one for a dollar or for five, they need to find a value solution here in the near term.

McDonald's originally announced its value menu would be seasonal, lasting only a month. It later decided to extend the deals. Analysts in the street alike expect these deals to remain in some form far longer. To continue to attract the value-driven consumer. We are working with the franchisees in the US to get a broader value construct in place. And so what we're working on right now with the franchisees is what's next. I consider the $5 meal a bridge value program. And then what we'll be doing is putting in place a more permanent value program, much like we had previously. Some restaurant analysts expect the value menus to slowly disappear as they normally do, but in their place will remain meal deals like Wendy's popular for four or Taco Bell's Cravings box. You know, it's just going to be a consistent battle for market share. I wouldn't expect dramatic changes in results from Q2 to Q3 just given the

demand environment. And so, what we're really going to be looking for is which restaurants, which companies can resonate most with consumers, and therefore outpace the rest of the industry.

Why Fast Food Chains Like McDonald’s, Wendy’s And Taco Bell Brought Back Value Meals

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Fast food customers are reacting to higher prices, prompting chains like McDonald's, Burger King, and Wendy's to bring back value meals.

McDonald's is launching a $5 value menu, while Wendy's and Burger King are also offering $5 meal deals.

The competition for low-priced meals is intensifying, with fast food chains hoping to win back customers and return to normal after a period of inflation and rising costs.

McDonald's Struggles with Same-Store Sales

McDonald's same-store sales in the US fell 0.

7% in Q2 2024, marking the first decline since 2020, with other chains like Burger King and KFC also experiencing drops.

Higher labor costs in states like California and New York have tightened profit margins for these fast-food chains.

McDonald's is implementing a $5 menu as part of a value playbook, aiming to increase customer traffic and sales, but the discount pricing is challenging for franchisees struggling with tight profit margins.

McDonald's Approach to Value and Franchisee Success

McDonald's has been successful for 60 years by balancing relationships with suppliers, the brand, and franchisees.

The internal debate among franchisees has led to a focus on value, with meal bundles driving incremental sales.

The company is working on a broader and more permanent value program, aiming to attract value-driven consumers and maintain market share.

The focus is on identifying restaurants and companies that can resonate with consumers in a challenging demand environment.

The goal is to determine which businesses can outpace the rest of the industry.

Understanding consumer preferences will be key to success in this competitive landscape.