They’re calling it the “Summer of Food Deals.” Restaurant chains like McDonald’s, Burger King, and Starbucks are “touting their affordability as consumers slash prices to dine at home,” Axios said, offering $5 deals to lure inflation-weary Americans back to the drive-thru. Prices at these chains have risen 31% since the pandemic, “further driving out many who turned to fast food restaurants for a cheaper option.”
“Price-cutting promotions are a gamble,” CNN says. While a $5 sale might jump-start sluggish sales, the low prices “eat into profit margins.” And there’s no guarantee they’ll work. McDonald’s, whose month-long deals include a small sandwich and a chicken nugget with fries and a drink, introduced new $1, $2 and $3 menu items in 2018. One analyst said the effort was “unsuccessful” in driving foot traffic. But the chain now feels it has little choice: “There’s a fight to maintain market share.”
“Americans are furious about inflation. McDonald’s has admitted they were right,” Helaine Oren said on MSNBC. Inflation is slowing, but “many people still tell pollsters the cost of living is too high.” Retail store openings are slowing and restaurant visits are down. The new $5 deals from America’s most famous food chain are a sign of a realization that “customers have reached their limit.” The chains didn’t cause inflation, but they fueled it by exploring how far they could raise prices. Now? “Years of price hikes and record profits are coming back to haunt us.”
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Fast Company’s Ellie Stevens said the value menu may be “too little, too late.” McDonald’s new menu items highlight how expensive the company’s other menu items have become in recent years for some customers. The result? One executive recently acknowledged that “some lower-income consumers are deciding to cook at home rather than buy meals at McDonald’s.” Drawing them back could be tough. “Time will tell whether next month’s limited-time menu will lure enough customers back to the Golden Arches.”
What next?
McDonald’s franchisees say the Value Meal will not last, CNBC reported. While McDonald’s regular combo meals earn franchisees up to 10% profit per meal, the Value Meal earns only 1% to 5% profit. “There is not enough profit to sustain the offer,” a National Owners Association official said. But McDonald’s may be calculating that the deal will act as a loss leader. “McDonald’s is counting on people bringing in friends who will order the Double Quarter Pounder with Cheese,” one analyst told MarketWatch.
Not all chains are on board with the move, according to CNN. “We’re not going to do that,” said Rick Cardenas, CEO of Olive Garden’s parent company, Darden Restaurants. Why not? For starters, Olive Garden has a history of not raising prices dramatically, even in times of inflation, preferring “relatively gradual increases and avoiding big discounts.” Cardenas said slow and steady wins, rather than big, necessarily temporary discounts. “Our approach is more sustainable,” he said.
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