U.S. fast-food chains cut discounts, push pricy meals post-pandemic
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[June 22, 2021] By
Hilary Russ
NEW YORK (Reuters) - Restaurant chains
including McDonald's Corp and KFC are paring back $5-and-under "value"
items in favor of more expensive $10-to-$30 combination meals, a
strategy employed to lift sales and profits and offset rising food costs
as the U.S. economy reopens.
"Value" meals – sandwich, soda and French fry combinations priced at $5
or less — have long been a staple of fast-food offerings. Chains used
the deals to lure bargain-conscious customers, bringing traffic to
stores. But deals priced at $5 and under have become less generous in
the last 18 months.
During the pandemic, fast-food gained market share from other
restaurants forced to close as customers motored through socially
distant drive-throughs to pick up a sack of burgers. Now that the United
States is reopening, those chains are selling new, pricier sandwiches
and meals to customers - a move that some warn may alienate some hourly
workers and other lower-income customers as government subsidies wane
and mom-and-pop restaurants reopen.
![](http://archives.lincolndailynews.com/2021/Jun/22/images/ads/current/farmersbank_lda_HOMETOWNHEROS_2021.png)
So far, the chains' trade-up tactic is working, helping lift comparable
sales at limited-service restaurants by 11.5% this May compared to the
same month in 2019, according to data from Black Box Intelligence.
Profit margins are also up at several major chains.
"Value menu items are not really profit drivers. They're designed to
drive traffic," said BTIG analyst Peter Saleh.
The pandemic also forced chains to halt development of new items. As
U.S. COVID-19 cases fall, chains are again launching new sandwiches –
and promoting them – to try to boost traffic, he said.
Wendy's Co said it pioneered the value menu in 1989, when it dedicated
part of its menu board to 99-cent items. But today, Wendy's is "trading
folks up into our best, highest-quality food items," said Chief
Executive Officer Todd Penegor during a May earnings call with analysts,
"and we'll continue to do that."
Wendy's current menu includes items that are higher priced than its
standard burgers, like its Spicy Pretzel Bacon Pub – a fried chicken
fillet on a pretzel bun topped with pickles, fried onions, bacon, two
kinds of sauce and muenster cheese for $7.
KFC, owned by Yum Brands International said it stopped marketing "$5
Fill Ups" – a pot pie or chicken dish, plus a medium drink, chocolate
chip cookie and sometimes a biscuit – aimed at individuals in 2020. It
now promotes family meal deals that cost as much as $30.
![](http://archives.lincolndailynews.com/2021/Jun/22/images/ads/current/peasley%20lda%20080907.png)
Dominos Pizza Inc said in April it did not need its "Boost Week"
discount to drive store traffic. So it suspended the half-price pizza
promotion for online orders.
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![](../images/062221PIX/2021-06-22T112151Z_3_LYNXNPEH5L0GF_RTROPTP_4_USA-FAST-FOOD_small.JPG)
Dollar Menu advertisements are seen outside a McDonald's restaurant
in Venice, California, April 29, 2018. REUTERS/Lisa Baertlein
![](http://archives.lincolndailynews.com/2021/Jun/22/images/ads/current/stclara_lda_SPONSOR_090519.png)
Franchisees typically try to maximize profits, said Credit Suisse analyst Lauren
Silberman. When commodity costs are as high as they have been over the past
year, franchisees discount less to maintain profitability. Many chains increased
their U.S. margins during the pandemic, including McDonald's and Yum Brand's
Taco Bell, she said.
U.S. Producer Prices Index data for May showed prices businesses have paid for
meat and poultry have spiked more than 20 percent since the start of the year.
CORE CUSTOMERS
Fast-food customers include both wealthier and lower-income hourly workers.
People with household incomes of $100,000 or more made up about 39% of fast-food
visits in May, while people making less $25,000 comprised about 12% of visits,
according to data from The NPD Group.
Those with incomes between $25,000 and $100,000 made up 49% of visits, the data
show.
Chains and franchisees that remove too many low-priced deals risk losing core
customers who specifically come in for those items, said Mark Kuperman, chief
operating officer at Revenue Management Solutions, a Florida-based pricing
advisor to restaurants.
To be sure, chains haven't completely abandoned the value menu. McDonald's
launched its "$1 $2 $3 Dollar" menu during the fast-food discount wars of 2018
as part of its turnaround plan. Today, that menu is pared down to 8 items
instead of 12.
![](http://archives.lincolndailynews.com/2021/Jun/22/images/ads/current/graue_sda_042021.png)
The company said value items remain a core part of its marketing. Meanwhile, it
is aggressively promoting its $10 "BTS Meal" named for the popular South Korean
boy band that endorses it. That higher-priced promotion is part of a strategy to
reach younger customers, McDonald's said.
Data shows fast-food chains launched fewer new combination meals over the last
18 months, according to Datassential, a Chicago research firm that counts the
deals that U.S. national restaurant chains promote on their websites and social
media.
A sample of 51 U.S. quick-service chains launched a total of 38 "combo/value
meals" through May. That's roughly on par with 66 total value meals that chains
launched in 2020. But the 2020 figure was nearly 57% lower than the 152 value
meals the chains launched in 2018.
Restaurant operators are optimistic.
"I've never seen consumers less price sensitive than they are today," one
fast-food franchisee told Reuters.
(Reporting by Hilary Russ; editing by Anna Driver and Nick Zieminski)
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