Fast food companies look to put the value back in value meal

Fast food's biggest brands are suddenly turning toward value after years of price hikes that have hampered sales.

Why it matters: The industry's prices have increased at a higher rate than grocery bills and gas prices over the last several years, Axios' Han Nichols reported.

Driving the news: In the wake of a move by McDonald's, Burger King is poised to debut a $5 value meal that includes a choice of three sandwiches plus nuggets, fries and a drink, Bloomberg reported.

• Burger King owner Restaurant Brands International did not respond to Axios' request for comment.
• McDonald's announced its own plans for a similar $5 value meal.
• "This is likely to be a summer of value, or maybe a year+ of value, to draw more price-sensitive customers back to fast food," Morgan Stanley analyst Brian Harbour wrote Tuesday in a research note.

The big picture: The industry's slowdown is driving a renewed focus on value and affordability, Axios' Kelly Tyko reported.

• "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 April 30 earnings call.

Zoom in: At McDonald's, prices have increased by 30% since 2019, according to Harbour.

• Price increases and reduced savings among low-income consumers have curbed sales — and the second quarter is expected to be worse than the first, Harbour predicts.

Quick take: Fatter wages and rising commodity prices have given fast-food franchisees little choice but to hike prices to make up the difference — but that's resulted in a trade-off.

• 78% of consumers now say fast food has become a luxury, according to a recent LendingTree survey.

Yes, but: 54% say they still eat fast food once to twice a week.

The bottom line: Fast food is feeling pressure to put the value back into the value meal.