A customer waits to order food at a McDonalds fast food restaurant on July 26, 2022 in Miami, Florida.
Fast-food chains are raising the price of their burgers, pizzas and tacos as inflation squeezes budgets – but expect higher prices, quicker portions and more deals that entice people to sign up for rewards programs and companies rethinking their value strategies.
Citing rising costs, Domino’s Pizza earlier this year raised the price of its Mix & Matched delivery deals from $5.99 to $6.99, and made its national $7.99 fulfillment offer available for digital orders only. Burger King removed the Whopper from its value menu and cut the 10-piece buns to eight pieces. For the first time, Yelp said customers are citing “shrinking inflation” in their restaurant reviews, typically in places that serve affordable offerings like hot dogs, hamburgers and pizza.
“We’ve seen companies tweaking their value menus across the board,” said Michael Schaefer, global head of food and beverage at market researcher Euromonitor International. “We’re seeing fewer items overall, limited price increases, smaller items.”
The changes represent the latest chapter in the ongoing evolution of the traditional value markets that are a hallmark of many fast food chains. In the years since McDonald’s dropped its popular Dollar Menu and Subway hit the brakes on its $5 Footlong campaign, experts say the industry is trying to reduce its reliance on such initiatives that eat into profit margins.
And as companies grapple with rising costs for ingredients and labor, the pressure to rethink value strategies is taking on new urgency.
Even as they quietly raise prices or change menu items, experts say fast-food companies are increasingly focusing on value strategies on mobile apps and rewards programs that would allow them to offer personalized deals, while raking in more money. out of every customer.
At McDonald’s, for example, customers can get a free order of large chips and 1,500 bonus points for downloading its app and signing up for its rewards program.
In an earnings call last month, McDonald’s executives said the program leads customers to visit more often and noted another potential benefit — the ability to eventually offer more personalized deals.
In contrast, national initiatives give discounts even to people who would have paid more, said McDonald’s CEO Chris Kempczinski.
“There is a lot of waste,” he said.
Chains that offer rewards programs include Chipotle, Chik-fil-A, Dunkin’ Donuts, Papa Johns, Wendy’s and Burger King, which allow members to earn “crowns” with purchases that can be redeemed for menu items.
Personalized offers can win by giving customers discounts on the items they want, while allowing companies to maintain profit margins, said Francois Acerra, director of consumer research and analytics for Revenue Management Solutions, a restaurant data analytics company.
“Brands can say ‘Oh, it’s because of inflation,’ but I think brands have been trying to move away from those lower price points for quite some time,” Acerra said. “Brands are willing to provide value to consumers as long as they can leverage guests’ purchase history to maximize customer lifetime value over the long term.”
Apps help companies do that. Given how often people check their phones, an app on a person’s home screen is “like the billboard ad that keeps coming,” said Adam Blacker, director of content and communications at Apptopia, a data analytics company.
“The rate we look at it, the importance it has within you, seeing that logo every day can have an effect,” he said.
Applications can also provide information on what customers are ordering and when and what promotions they respond to, helping companies improve push ad strategies for deals.
Still, rewards programs are still a relatively new and developing area for many companies. Meanwhile, one way companies are offering more targeted deals is by giving flexibility to local operators.
McDonald’s executives said the chain will run national promotions, such as its $1, $2, $3 menu, but that regions can choose the products to offer. Papa John’s executives also noted the freedom their restaurants have to adjust markets.
“A discount in San Francisco is different than a discount in Atlanta and Ohio,” CEO Rob Lynch said during the company’s earnings call.
But even as they become more targeted in the coming years, experts say fast-food chains will need to continue offering attractive deals to attract certain customers.
“They may look a little different than in years past, but there will always be a place for high-visibility, low-price, traffic-driving and higher-margin add-ons,” said Euromonitor’s Schaefer.