Fast food chains across the country are competing to offer high-value budget meals in an effort to entice customers.
The promotions come in the context of a slight levelling off of inflation and an increase in the minimum wage in California and other states.
Minimum Wage Increases in California and Other States
The minimum wage recently rose to $20 per hour in the state of California, and other states have also recently increased their minimum wage requirements.
At the time, this led to some fast food chains, including Mcdonald’s and Starbucks to announce that they were reviewing their pricing strategies.
High Prices Are Putting Off Customers
Inevitably, the higher prices are leading to fewer sales in some fast food outlets as customers look elsewhere at mealtimes.
The CFO of Mcdonald’s, in May, said that “everybody’s fighting for fewer consumers” as Mcdonald’s, Starbucks, Pizza Hut and KFC all posted sales in lower-than-expected quantities.
Budget Meals Intended to Bring Back the Customers
These budget deals are intended to arrest some of that decline and bring back otherwise absent customers.
Fast food has increasingly been seen no longer as the affordable, quick choice that it has been marketed as in the past.
Not the First Time Fast Food Retailers Have Come to Blows.
In the 1980s, there was a period of intense rivalry spurred on by big budget marketing campaigns dubbed the ‘Burger Wars’.
It arguably culminated when a Wendy’s advertising slogan, “Where’s the beef?”, penetrated political debate as Walter Mondale used it to criticize Gary Hart’s ‘bun-heavy’ policies during the 1984 US presidential election campaign.
Franchisees Can Set Prices
Most fast food stores are franchised and can therefore set their own prices, so budget deals may not be seen across the board.
However, ingredient and labor costs mean that largely uniform pricing decisions can often be made. Companies such as McDonald’s also give retailers “informed pricing recommendations”, leaving the final price up to the franchisee.
Amidst All This, Outlook Stays Rosy for Fast Food Chains
Despite wage increases and reduced footfall, companies are still reporting higher profits.
In 2024, in the first quarter, sales grew by almost 2% according to McDonald’s own releases.
How Can Companies Continue to Profit Despite Challenges?
As with many other modern companies, profits can often be attributed to detailed analysis of consumer buying habits.
McDonald’s offered their own explanation of how they have managed to continue to increase profits. They said that they have “benefited from average check growth driven by strategic menu price increases”, indicating that each time a customer walks through the door, they’re spending more money than they did in the past.
Analysis Aided by App-Only Deals
Apps allow easier tracking of consumer spending habits and, as a result, companies are keen for consumers to move their spending on to the app.
One of the strategies is offering the best deals on the app. App-based deals can offer membership incentives, and costs can be almost 50% cheaper through app-only deals.
McDonald’s President Defends Price Rises
In response to consumer complaints about price rises, Joe Erlinger, the president of McDonald’s has suggested that consumer perceptions are wrong.
He said that, in contrast to social media posts bemoaning prices doubling, the average cost of a Big Mac has only gone up by 21% since pre-pandemic levels. He says that social media posts are “inaccurate”.
