Cheap deals are no longer enough

Major fast food chains in the United States, including McDonald’s are finding it harder to attract customers simply by offering cheaper meals and discounts.  Recent second quarter results show that price is still important but customers are now looking at other things too including food quality new menu choices and better service.

Over the past two years, US fast food companies have used low-cost deals and promotions to attract customers affected by inflation.  However recent results suggest that discounts alone are no longer enough to keep customers coming back.

The chains that performed better were those that combined affordable deals with new menu items better food quality and an easier customer experience.

Taco bell sees strong growth

Taco Bell owned by Yum Brands has focused on simple and clearly priced deals instead of offering large discounts across its entire menu. Its $5, $7, and $9 meal boxes became popular with customers. The company also added new menu items encouraging customers to buy more than just the discounted meal.

Rachel Royster director of strategic planning and innovation at food-service consultancy Kinetic said value deals work best when customers can easily understand what they are getting and do not feel they are being attracted by a cheap offer only to face higher prices later.

Taco bell reported a 7% increase in same store sales during the quarter. McDonald’s by comparison, recorded a 1.3% increase in global comparable sales.

McDonald’s faces challenges

McDonald’s also introduced low cost options including a menu with items priced below $3 and a $4 breakfast meal.  However the company’s performance was weaker than expected.

McDonald’s CEO Chris Kempczinski said about two thirds of the decline in customer traffic came from people who were already loyal McDonald’s customers.  He said the problem was mainly with how the company’s strategy was carried out rather than the strategy itself.

Low income customers remain 

Under pressure

Results from other fast food companies also show that discounts have not completely solved the financial pressure faced by lower income customers.

Wendy’s introduced its Biggie Bag value deals starting at $5. Despite these offers its US same-store sales fell by 7%, and the company withdrew its yearly financial forecast. Wingstop also offered several promotions including $1 chicken wings

but its US same store sales dropped by 7.5%. Wingstop CEO Michael Skipworth said sales were weaker in urban areas where many families are facing greater financial pressure.  In higher income areas however restaurant visits increased by as much as 9%.

The company’s shares have also fallen sharply over the past six months.

Analyst Matt Curtis of D.A. Davidson said the large number of promotions from different fast food chains has made it harder for customers to compare offers.  Customers are now taking more time to compare deals and choose what gives them the best value.

Being the cheapest is not enough

The second quarter results also show that a restaurant does not have to be the cheapest option in the market to succeed.

Burger King owned by Restaurant Brands International was among the chains that performed better.

Company officials credited its strong US sales to promotions such as “2 for $5” and “3 for $7,” along with improvements in operations and menu quality.

Restaurant consultant John Gordon said Burger King is offering discounts but it is not relying on deep promotions all the time.  The company has also changed the way it presents its offers instead of constantly competing on the lowest possible price.

Domino’s and Chipotle also perform well

Domino’s Pizza benefited from value-focused offers and loyalty programs.  These efforts helped bring more customers to its restaurants and support sales.

Chipotle Mexican Grill also reported strong results.  The company kept its price increases relatively limited, at around 1% to 2%.

Chipotle CEO Scott Boatwright said value is not only about lower prices or discounts. It can also include convenience better service and new food choices.

Customers want more than cheap food

The latest results from the US fastfood market suggest that customers are becoming more careful with their spending.

While affordable deals remain important

people are also looking for good food better service convenient experiences and interesting menu options.

For fast food companies the message is clear being cheap may attract customers but offering better overall value is what can keep them coming back.