McDonald’s started it with a $5 value meal, quickly followed by Burger King and Taco Bell. Now Sonic has jumped into the fray, lowering the ceiling to $1.99 in the hope of luring in new customers with a funky name and getting them to buy pricier, more profitable offerings along with the deal items.
The name of the game is foot traffic. Placer.ai’s monthly analysis shows foot traffic at QSR’s has flattened since January when it was more than 20% higher than November. Last month’s report showed barely more than a 2% rise from May.
Can the deals work and create new, loyal customers without damaging profits? Experts contacted by The Food Institute had their doubts, saying the increased traffic likely won’t last.
“It’s important to remember that real customer loyalty often depends on consistent quality, service, and doing everything in your power to keep the customer happy and satisfied, beyond just the deal itself,” said Ira Prevalova, marketing director at Adverity.
Andrew Dickow, national food and beverage leader at Greenwich Capital Group, said the traffic spikes produced by value meals “often do not foster long-term loyalty” and don’t do much to improve the bottom line, despite add-ons and upgrades. He opined:
“In an environment where almost all fast-food chains are launching new value menus, these ‘loss leader’ offerings seem unlikely to drive additional market share.”
“Franchisees must balance the benefits of increased traffic with the potential financial strain to ensure sustainable profitability,” Dickow added.
This week, Applebee’s added a new wrinkle to the value wars, announcing a 50-cent mozzarella stick deal. The deal runs through July 28.
Sonic said its Fun.99 menu will be a permanent addition. It features such items as cheeseburgers and wraps, along with tots and shakes, but unlike its competitors’ meal deal, Sonic’s menu is $1.99 per item. McDonald’s $5 value meal includes a sandwich, fries, chicken nuggets and a drink.
“Many restaurant brands are touting value meals and discounts, and you see a lot of recycled ideas with limited options,” Sonic CMO Ryan Dickerson said in a press release. “At Sonic, we wanted to do something different – something fun – so, we focused on variety.”
The Bureau of Labor Statistics reported fast-food prices are up 4.8% from last year, compared with 3.3% inflation overall. In the past decade, fast-food inflation was 47%, compared with 33% overall.
One of the consequences of that jump in prices is that full-service restaurants became more competitive, Izzy Kharasch, president of Hospitality Works, told FI.
“Getting the customer in the door through the value meal is the easy part – turning them into loyal customers is where the work begins,” Kharasch said, predicting fast-food restaurants “will sacrifice high profits for quite a while in order to bring in those customers who strayed into other restaurant categories because the pricing became so competitive.”
The Food Institute Podcast
Tom Hamill, a food and beverage senior analyst for RSM US LLP, joined The Food Institute Podcast to recap the 2024 Summer Fancy Food Show. Hamill shares his thoughts on burgeoning trends from the show and how emerging specialty food brands can best navigate economic factors in the years to come.
