May 18, 2024 - Business

Restaurants push new deals to lure consumers back

Illustration of George Washington on a one dollar bill holding a cheeseburger

Illustration: Sarah Grillo/Axios

A series of price increases are forcing a growing number of consumers to close their wallets at fast-food and fast-casual restaurants.

Why it matters: Executives across the industry say they've seen sales suffer as consumers trade down and eat at home.

  • Red Lobster, the largest seafood restaurant chain, is considering filing for bankruptcy and closed nearly 100 locations nationwide.

The big picture: The restaurant struggles are leading to a renewed focus on value and affordability, executives say.

  • "Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending," McDonald's CEO Chris Kempczinski said on the company's earnings call on April 30.
  • It's not just low-income consumers, Kempczinkski said, but "I think all consumers are looking for good value for good affordability."
  • Starbucks CEO Laxman Narasimhan said during the coffee giant's April 30 earnings call that "many customers are being more exacting about where and how they choose to spend their money."

Yes, but: Gunther Plosch, Wendy's chief financial officer, said in early May while households with less than $75,000 in come are reducing frequency of visits, high-income consumers are driving more traffic.

McDonald's $5 meal deal and Starbucks discounts

Zoom in: McDonald's and Starbucks are among the chains banking on deals and new menu items to lure back consumers after sales declines.

  • McDonald's plans to launch a new $5 meal deal in late June with four items for a limited time, The Wall Street Journal reported.
  • Starbucks has been showering rewards members with multiple deals after last quarter's declining traffic and has added various new items like spicy refresher drinks.
  • For the month of May, Starbucks has rolled out personalized deals including buy-one-get-one-free offers on Mondays and 50% off drinks every Friday.

Between the lines: Neil Saunders, GlobalData managing director, told Axios that consumers really want everyday low prices over limited-time deals and offers.

  • "McDonald's $5 meal is sensible, but it will only be offered for a limited time so it will not resolve perceptions that the chain has become very expensive," Saunders said.
  • "Consumers remain squeezed and many of them can't justify the high prices in fast food — which is supposed to be an inexpensive indulgence," Saunders said.

The intrigue: Rising fast food prices are providing a sales opportunity for Walmart, John David Rainey, the retailer's chief financial officer, told CNBC.

  • "It's roughly 4.3 times more expensive to eat out than it is to eat at home," Rainey told CNBC. "And that's benefiting our business."

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