McDonald’s started it with its $5 combo deals, quickly followed by Burger King and Taco Bell, and now Sonic has joined the fray, lowering the cap to $1.99 in an effort to lure new customers with its funky name and encourage them to buy more expensive, higher-margin items along with their deals.
Foot traffic is key: According to monthly analysis from Placer.ai, QSR foot traffic has plateaued since January, when it was up more than 20% from November. Last month’s report showed it was up just over 2% from May.
Will the deal be successful and attract new, loyal customers without hurting profits? Experts contacted by the Food Institute were skeptical, saying any increase in foot traffic would probably be short-lived.
“It’s important to remember that true customer loyalty isn’t just about the transaction itself, it’s about consistent quality, service and doing everything in your power to keep your customers satisfied,” says Ira Prevalova, marketing director at Adverity.
Andrew Dickow, national food and beverage leader at Greenwich Capital Group, said the traffic surges brought on by value meals “do little to foster long-term customer loyalty” and don’t do much to boost revenue, despite the extra features and upgrades.
“In an environment where nearly every fast-food chain is introducing new value menu items, it seems unlikely that these ‘loss-leader’ menu items will gain additional market share.”
“Franchisees must balance the benefits of increased traffic with the potential financial burden to ensure sustainable profitability,” Dickow added.
Applebee’s added a new dimension to the price wars this week by announcing a sale offering mozzarella sticks for 50 cents, available through July 28.
Sonic said its Fun.99 menu will be a permanent addition to its menu. The menu includes items like cheeseburgers, wraps, tots and shakes, but unlike competitors’ meal sets, Sonic’s items are priced at $1.99 each. McDonald’s $5 value set includes a sandwich, fries, chicken nuggets and a drink.
“Many restaurant brands tout great deals and discounts, but they often offer limited options and tired ideas,” 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 that fast food prices rose 4.8% over the last year, while overall inflation was 3.3%. Over the past decade, fast food inflation was 47%, while overall inflation was 33%.
One consequence of rising prices is that full-service restaurants have become more competitive, Jiri Karasz, president of Hospitality Works, told FI.
“It’s easy to bring customers in with value offers; it’s the beginning of work to turn them into regulars,” Karasz said, predicting that fast-food restaurants will “sacrifice higher margins for quite some time to win back customers who have been driven to other restaurant categories by increased price competition.”
Food Institute Podcast
Tom Hamill, Senior Food & Beverage Analyst at RSM US LLP, appeared on The Food Institute Podcast to give an overview of the Summer Fancy Food Show 2024. Hamill shares his thoughts on burgeoning trends at the show and how emerging specialty food brands can navigate economic forces in the coming years.
