They call it the “summer of food deals.” Restaurant chains like McDonald’s, Burger King and Starbucks “are driving affordability as consumers switch to cheaper products and eat at home.” Axios said, offering $5 deal combos to lure inflation-stricken Americans back to drive-thrus. Prices at the chains have risen 31% since the pandemic, “putting many who used fast-food restaurants as a cheaper alternative out of business.”
“Price promotions are a gamble”, CNN said. The $5 deals could boost declining sales, but the low prices “also eat into margins.” And there’s no guarantee it will work. McDonald’s – whose month-long savings offer includes a small sandwich and chicken nuggets, plus fries and a drink – introduced a new menu of $1, $2 and $3 dishes in 2018. Those efforts “weren’t successful” in terms of driving customer traffic, one analyst said. But the chains feel they have little choice now. “It’s a struggle to retain market share.”
“Americans are angry about inflation. McDonald’s just admitted they were right,” Helaine Olen said on MSNBC. The inflation rate is falling, but “a lot of people are still telling pollsters that the cost of living is way too high.” Retail sales are falling and restaurant visits are declining. The new $5 menu from America’s most famous restaurant chain is an admission that its “customers have reached a breaking point.” Restaurant chains didn’t cause inflation, but they have exacerbated it by trying how far they can raise prices. And now? “The bill for years of price increases and record profits is coming due.”
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The inexpensive meals may come “too little, too late,” said Ellie Stevens at Fast Company. McDonald’s new offering has actually made some customers realize how much more expensive the company’s other offerings have become in recent years. The result? One executive recently acknowledged that “some lower-income consumers are choosing to cook at home rather than buy from McDonald’s.” It may be difficult to win them back. “Time will tell if the temporary offering will lure enough people back to the Golden Arches next month.”
What next?
According to CNBC, McDonald’s franchisees say the low-cost menu won’t last. The usual McDonald’s combo menu offers franchisees a profit of up to 10% per meal — the low-cost menu, on the other hand, offers a profit of 1% to 5%. “The profit is just not high enough” to sustain the offer, said the National Owners Association board. However, the company may calculate that the offer is a bait and switch. “They’re hoping you’ll bring your buddy, who’ll order the Double Quarter Pounder with cheese,” one analyst told MarketWatch.
Not every restaurant chain is on board, CNN said. “We’re not doing that,” said Rick Cardenas, CEO of Olive Garden’s parent company Darden Restaurants. Why not? For one thing, Olive Garden hasn’t made big price increases even in times of inflation, but has “avoided relatively modest price increases and big discounts.” Slow and steady wins the race, Cardenas said, not big and inevitably temporary discounts. “The way we’re doing it,” he said, “is more sustainable.”
