With a booming stock market, low unemployment, and high consumer confidence, the state of the economy underlines the lasting importance of value, no matter how the market changes.
“That sort of tells us, looking ahead, we should expect to still see these value offerings regardless of these economic cycles,” Kerr says. “Since the dollar menus were introduced, we’ve had many up and down cycles, and the value menus are staying there.”
She adds that brands have reimagined the concept of value, offering valuable deals at different price points. While McDonald’s is competing at the $1, $2, and $3 prices, Subway’s main value draw is nearly $5 and Wendy’s is at $4 with its 4 for $4 meals.
Those deals provide guests with whole meals at low prices. “While that looks very different from the dollar menus of days’ past, that’s still value,” Kerr says. “Value can come in all shapes and sizes. It’s in the eye of the beholder.”
While operators often associate value offerings as driving heavy traffic, Kerr says customer feedback regularly shows that price is not often the deciding factor for customers.
“Some guests care and some guests don’t,” she says. “In my experience, when you ask them about what’s driving their purchase, they will mention so many things before they mention price.” For example, they mention how they craved a certain item or how a restaurant has good service or is simply convenient to their home or work, she says. Price is often low on the list or not on the list at all.
In a January 30 quarterly earnings call, McDonald’s CEO Steve Easterbrook told investors that the company has grown sales across the menu, not just in value-priced items. He pointed to the lasting popularity of core items like the Big Mac, Egg McMuffin, and Chicken McNuggets. Easterbrook said recent strategy changes have led to the brand gaining new customers, winning back former customers, and converting casual customers to committed ones.
Only a few weeks into the new dollar menu, Easterbrook said, it was too early to tell what effect the change would have on the bottom line in the long term. But, he added, initial results were encouraging. “With relevant menu choices for our most price-sensitive customers, we have strengthened consumer perceptions of McDonald’s as a place to find a tasty and affordable meal,” he said on the call. “Across the system, our markets have increased the range and appeal of our food and real bundles offered every day at compelling price points.”
McDonald’s move will likely lead the entire quick-service category to up its value offerings, says Bonnie Riggs, restaurant industry analyst at market research firm NPD Group. In a recent report, she dubbed the influx of low-priced items in the quick-service space as Value Wars 2.0.
After de-emphasizing value offerings for several years, Riggs says, many brands, particularly in the burger category, are getting back to the basics. The reason? Value-priced items drive traffic. And the burger category—nearly a quarter of the entire industry—has suffered from four years of shrinking traffic.
“Many in the category think it’s time to focus on the lower end of the price spectrum, as McDonald’s let everybody know,” she says. “We’re saying let the value wars begin, because everyone is going to have to come up with a value proposition of their own just to retain their own customers so they don’t lose them to McDonald’s.”
Riggs expects to eventually see “a wear-out factor” with today’s price wars. At some point, customers don’t see value meals as anything special.
“We’ve been away from value for quite a while,” she says. “It’s going to initially be perceived as a strong value proposition. Now, after its been in place for a while, that will become the expected price. That just is natural. But I think they have a long way to go before that kicks in.”
As fast-casual brands mushroomed in popularity in recent years, many quick serves attempted to compete in that space with more premium products. Riggs suspects those efforts led some brands to de-emphasize value. “They need to focus on their core,” she says. “And what they are about is cheap eats and convenience.”
Still, restaurants may see some relief from the price wars. As the economy expands and average people begin to experience the effects of federal tax reform, many Americans are likely to spend more generously, says Gary Stibel, CEO of the New England Consulting Group. Even those who don’t fully understand the changes in tax code are expecting lower taxes, he says.
“Forget about the blue states versus the red states or Democrats versus the Republicans—the sentiment of the average American has improved,” Stibel says. “This is a time when people are feeling a little richer than they did. This is a huge opportunity for the restaurant industry.”
Many restaurants think discounts are the only way to emphasize value. But Stibel warns that’s a misnomer. He says efforts like Starbucks’ loyalty program provide consumers value without overly generous discounts.
“This is a perfect opportunity for weaning themselves off the heroin of discount,” he says. “Discount is a heroin. The more you do it, the more you need to do it, the more your competition does it. Before you know it, everyone is doing it.”
Still, there are some consumers for whom value menus will always remain critical. Stagnant wages plague a large swath of the population. Many younger workers are still living in their parents’ basements as they work toward financial independence. And millions of senior citizens live off fixed incomes that barely cover the basics.
While those groups are price-conscious, they still eat out.
“There’s an opportunity to capture and repeat with these people, because they eat every day,” Stibel says. “They still have money in their pocket. It’s just that they’re dollars, not $10s or $20s.”
