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

Introduction 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 Chapter 1. The return of the value menu spend. You go back. To where we were in 2019. Our costs in the US have gone up 40% in our restaurants since 19, 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. Chapter 2. Franchisee pushback 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 have 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 been it's prided itself 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. Chapter 3. How long will it last? 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 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, with consumers and therefore outpace the rest of the industry.