May 24, 2024 - Business

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

Illustration of french fries in a downward arrow shaped fast food container

Illustration: Sarah Grillo/Axios

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.

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