They’re calling it the “summer of food deals.” Restaurant chains like McDonald’s, Burger King and Starbucks are “promoting affordability as consumers trade down to eat at home,” Axios said, offering $5 bargain combos designed to entice inflation-weary Americans back to the drive-thrus. Prices at the chains are up 31% since the pandemic, which “priced out many who turned to fast-food restaurants as a cheaper alternative.”
“Price promotions are a gamble,” CNN said. The $5 deals might jump-start lagging sales, but the low prices also “eat into margins.” And there’s no guarantee it will work. McDonald’s — whose month-long value deal includes a small sandwich and chicken nuggets, plus fries and a drink — in 2018 introduced a new menu of $1, $2 and $3 items. That effort “was not successful” in boosting traffic, one analyst said. But chains feel like they have little choice now. “There is a battle to try and hang on to market share.”
What did the commentators say?
“Americans are mad about inflation. McDonald’s just admitted they were right,” Helaine Olen said at MSNBC. The inflation rate is slowing, but “many people still tell pollsters the cost of living is much too high.” Retail numbers are slowing and restaurant visits are in decline. The new $5 value meal by America’s most famous food chain is a recognition that its “customers had reached a breaking point.” Chain restaurants didn’t cause inflation, but they added to it by seeing how far they could raise prices. Now? “The bill for years of hiked prices and record profits is coming due.”
The value meals may be “too little, too late,” Ellie Stevens said at Fast Company. McDonald’s new offering has actually highlighted for some customers how much more expensive the company’s other offerings have gotten in recent years. The result? One executive recently “conceded that some lower-income consumers are deciding to cook at home rather than buy McDonald’s.” It may be difficult to bring them back. “Time will tell if next month’s temporary offer will entice enough people back to the Golden Arches.”
What next?
McDonald’s franchise owners say the value meal can’t last, said CNBC. The usual McDonald’s combo meal offers franchisees profits of up to 10% a meal — but the value meal comes in at a 1% to 5% profit. “There simply is not enough profit” to sustain the offer, said the board of the National Owners Association. However, the company may be calculating that the deal acts as a loss leader. “They’re hoping you bring your buddy, who’s going to order that Double Quarter Pounder with Cheese meal,” one analyst told MarketWatch.
Not every chain restaurant is on board, CNN said. “We’re not doing that,” said Rick Cardenas, the CEO of Olive Garden’s parent company Darden Restaurants. Why not? For one thing, Olive Garden has held the line on big price hikes even during the era of inflation, instead instituting “relatively moderate pricing increases and avoiding deep discounts.” Slow and steady wins the race, Cardenas said, not big and inevitably temporary discounts. “The way we do it,” he said, “is more sustainable.”