NEW YORK, June 22 (Reuters) – Restaurant chains including McDonald’s Corp (MCD.N) and KFC (YUM.N) are slashing “value” items by $ 5 and less in favor of more expensive combo meals by 10 $ to $ 30, a strategy used to increase sales and profits and offset rising food costs as the US economy reopens.
“Value” meals – combinations of sandwiches, soda, and fries at $ 5 or less – have long been a staple of fast food offerings. The chains used the offers to attract bargain-conscious shoppers, bringing traffic to the stores. But offers at $ 5 and under have become less generous over the past 18 months.
During the pandemic, fast food gained market share as other restaurants forced to close as customers drove through socially remote drive-ins to pick up a bag of burgers. Now that the United States is reopening, these chains are selling new, more expensive sandwiches and meals to customers – a move that some say could alienate some hourly workers and other low-income customers as government subsidies decline and government subsidies decline. family restaurants are reopening.
So far, the chain swap tactic is working, helping to increase comparable sales at limited-service restaurants by 11.5% in May compared to the same month in 2019, according to data from Black Box Intelligence. Profit margins are also on the rise in several large chains.
“Value menu items aren’t really profit drivers. They’re designed to drive traffic,” said Peter Saleh, analyst at BTIG.
The pandemic has also forced chains to stop the development of new items. As COVID-19 cases in the United States fall, chains are once again launching new sandwiches – and promoting them – to try to increase traffic, he said.
Wendy’s Co (WEN.O) said it pioneered the value menu in 1989, when it dedicated part of its menu board to 99-cent items. But today, Wendy’s is “trading people for our best, highest-quality food,” CEO Todd Penegor said on a May earnings conference call with analysts, “and we will continue to do so. make”.
Wendy’s current menu includes items more expensive than her standard burgers, like her Spicy Pretzel Bacon Pub – a fried chicken fillet on a pretzel bun topped with pickles, fried onions, bacon, two kinds of gravy and muenster cheese for $ 7.
KFC, owned by Yum Brands International (YUM.N), said it has stopped marketing “$ 5 Fill Ups” – a pot pie or chicken dish, plus a medium drink, a chocolate chip cookie and sometimes a cookie – intended for individuals in 2020. It’s now being promoted family meal offers that cost up to $ 30.
Dominos Pizza Inc (DPZ.N) said in April that it didn’t need its “Boost Week” discount to drive in-store traffic. He therefore suspended the promotion of half-price pizzas for online orders.
Franchisees generally try to maximize their profits, said Lauren Silberman, analyst at Credit Suisse. When commodity costs are as high as they have been in the past year, franchisees discount less to maintain profitability. Many chains increased their margins in the United States during the pandemic, including McDonald’s and Yum Brand’s Taco Bell, she said.
U.S. Producer Price Index data for May showed prices paid by companies for meat and poultry have risen more than 20 percent since the start of the year .
Fast food customers include both richer and lower-income hourly workers.
People with family incomes of $ 100,000 or more made up about 39% of fast food restaurant visits in May, while people earning less than $ 25,000 made up about 12% of visits, according to data from The NPD Group.
Those with incomes between $ 25,000 and $ 100,000 accounted for 49% of visits, according to the data.
Chains and franchisees who cut too many low-priced offers risk losing core customers who come specifically for these items, said Mark Kuperman, COO at Revenue Management Solutions, a pricing advisor for restaurants. based in Florida.
Of course, the chains have not completely abandoned the menu of values. McDonald’s launched its “$ 1 $ 2 $ 3” menu during the 2018 fast food rebate war as part of its turnaround plan. Today, this menu is reduced to 8 items instead of 12.
The company said valuable items remain a critical part of its marketing. Meanwhile, he’s aggressively promoting his $ 10 “BTS Meal” named after the popular South Korean boy group that backs him up. The higher-priced promotion is part of a strategy to reach younger customers, McDonald’s said.
The data shows that fast food chains have launched fewer new combo meals in the past 18 months, according to Datassential, a Chicago-based research firm that counts the offerings that U.S. national restaurant chains promote on their websites and their websites. social networks.
A sample of 51 US fast food chains launched a total of 38 “combo / valid meals” through May. That roughly equates to the 66 total value meals the chains launched in 2020. But the 2020 figure was almost 57% lower than the 152 value meals the chains launched in 2018.
Restaurant owners are optimistic.
“I have never seen consumers who are less price sensitive than today,” a fast food franchisee told Reuters.
Reporting by Hilary Russ; edited by Anna Driver and Nick Zieminski
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