All eyes on value
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Managing editor Leigh Anne Zinsmeister here, with lots of thoughts on what seems to be the word of the summer for restaurants: Value.
The value storm has been brewing for a while now, and things seem to be coming to a head. McDonald’s CFO Ian Borden has gone so far as to call it a “street fight” to win over low-income consumers. Last week, Burger King accelerated the return of its $5 Your Way Meal. This came not long after rumors started swirling that McDonald’s would introduce a $5 value meal sometime this summer. McDonald’s, of course, has known for a while that it’s been losing its value edge and has been strategizing a national value platform. Meanwhile, Jack in the Box this week announced that 11 “munchies” will be available for under $4 each starting June 3.
It's not just QSRs playing this game — casual-dining chains are all over it as well. Chili’s has already seen the benefits of its value messaging, as the brand overperformed on traffic in its third quarter. Applebee’s is focused on value as well, bringing back its Dollarita.
The one segment that doesn’t seem to need to worry? Fast casual. It makes sense, as QSR consumers can get a fast-casual meal for about the same amount of money in a lot of cases, and casual-dining consumers may be trading down to save money. Fast-casual brands like Wingstop and Sweetgreen performed much better than the industry overall in the most recent quarter.
It'll be an interesting summer, to be sure. Will one chain emerge victorious? Stay tuned to NRN.com.
The new value equation at restaurants
Restaurant value used to be a much simpler calculation: Discount-driven customers would seek out dollar meals at quick-service restaurants, call for pizza delivery on Friday nights (sans delivery fees), and then splurge on full-service meals on rarer occasions. But in 2024, with dollar menus all but extinct, and newer variables like convenience pricing, service fees, shrinkflation, and dynamic pricing in the mix, the consumer value equation has never been more complex.
Or has it? Customers may have more options than ever before, from ordering almost any food they want from the comfort of their own home to choosing to dine out “the old-fashioned way” (and every “channel” in between) but spending habits have not changed as much as we might think they have. According to data from Technomic, customers are roughly as price-conscious now as they were just before the pandemic. In a survey, half of customers said that they picked restaurants with lower prices in Q1 2020, while 52% of customers said they do so in Q1 2024, and the exact same percentage of customers (68%) said they pay close attention to menu prices in both Q1 2020 and Q1 2024.
A ‘street fight’ has erupted to win over low-income consumers
Though plenty of studies have been done showing that a higher density of quick-service restaurants exist in lower-income neighborhoods, those with higher incomes ($100,000 and above) are more likely to consume fast food more often. Perhaps that’s because the persistent backdrop of menu inflation may be starting to price out those lower-income consumers. At least, that’s what we heard over and over (and over) again during Q1 earnings calls. Indeed, according to AlphaSense, mentions of “low-income consumers” on public company calls more than doubled in the latest quarter versus the previous quarter. Restaurant companies were certainly not immune. To wit: ?
Wendy’s executives noted that cohorts with a household income below $75,000 are “definitely under pressure.” They’re reducing frequency and visits. This is partially offset by more frequency from the higher income consumer. Shake Shack’s lower income consumers traded down “from time-to-time,” according to outgoing CEO Randy Garutti. Even though the company is performing well across income demographics, Liz Williams, CEO of El Pollo Loco, noted a need to have “even more value,” which is something the company is working on.
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Jack in the Box joins in on the value play game with new price point for Munchies: Under $4
San Diego-based Jack in the Box shared on Wednesday details of its new value menu under $4, which will launch June 3. The quick-service restaurant’s new menu, called Jack’s Munchies Under $4, will offer 11 menu items along with an option to add a drink.
“As the only place to offer true variety to tackle any and every craving you might have, Jack in the Box is committed to maintaining that variety at a value that still leaves some extra cash in your pocket,” said Ryan Ostrom, CMO, in a statement. “We want to make sure customers don’t have to sacrifice their favorite things when they want to eat out. In addition to rolling out this new menu, we’re also doubling down with exclusive digital offers since we know that’s where so many of our customers consistently visit us.”
Minnesota has joined California in banning restaurant ‘junk fees’
Minnesota Gov. Tim Walz signed a price-transparency bill into law this week detailing how industries, including restaurants, will have to make additional fees clear to customers upfront. The law goes into effect Jan. 1.
“Minnesotans value transparency, which is why we’re putting an end to junk fees on everything from food and entertainment to hotels and credit card fees,”?said Walz in a press release.?“This bill is going to protect Minnesotans’ bottom line, provide clarity for consumers, and ensure companies aren’t using deceptive practices to rip their customers off.”
Businesses will have to inform customers of all fees it may be adding to the bill before they sit down. In addition, the full price will have to be displayed on advertising material.
NRN editors discuss Red Lobster’s bankruptcy and whether flashy marketing moves can work
This week on the Extra Serving podcast, a product of Nation’s Restaurant News, NRN editors Holly Petre, Sam Oches, and Leigh Anne Zinsmeister spoke about Red Lobster’s bankruptcy.
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