Fast food chains are playing up the value of their burgers, pizza and tacos as inflation squeezes budgets — but expect higher prices, lean portions and more deals that will entice people to sign up for rewards programs as companies rethink their value strategies.
Citing rising costs, Domino’s Pizza raised the price of its Mix & Match delivery deal from $5.99 to $6.99 earlier this year, and made its $7.99 national pick-up offer available only on digital orders. Burger King removed the Whopper from its value menu and cut its 10-piece nuggets to eight pieces. For the first time, Yelp said customers mention “shrinkflation” in their restaurant reviews, usually in places serving affordable offerings such as hot dogs, burgers and pizza.
“We’ve seen companies adapt their value menus across the board,” said Michael Schaefer, the global food and beverage leader at market researcher Euromonitor International. “We’re seeing fewer items overall, limited price increases, smaller items.”
The changes mark the latest chapter in the ongoing evolution of the traditional value deals that have become a hallmark of many fast food chains. In the years since McDonald’s dropped its popular Dollar Menu and Subway put the brakes on its $5 Footlong campaign, experts say the industry has been trying to reduce its reliance on such promotions that hurt profit margins.
And as companies face rising costs for ingredients and labor, the pressure to rethink value strategies becomes urgent.
Even as they quietly raise prices or change menu items, experts say fast food companies are increasingly focusing value strategies on mobile apps and rewards programs that allow them to offer personalized deals while earning more money from each customer.
For example, at McDonald’s, customers can get a free order of large fries and 1,500 bonus points for downloading the app and signing up for the rewards program.
In an earnings call last month, McDonald’s executives said the program is driving customers more frequently and noted another benefit: the ability to eventually offer more personalized deals.
National promotions, on the other hand, even give discounts to people who would have paid more, said McDonald’s CEO Chris Kempczinski.
“There’s a lot of waste in that,” he said.
Among the chains that offer rewards programs are Chipotle, Chik-fil-A, Dunkin’ Donuts, Papa Johns, Wendy’s and Burger King, which allow members to earn “crowns” with purchases that can be redeemed for menu items.
Personalized offers can be a win-win by giving customers discounts on the items they really want, while also keeping businesses on their profit margins, says Francois Acerra, director of research and consumer analytics for Revenue Management Solutions, a restaurant data analytics firm.
“Brands may say ‘Oh, it’s because of inflation,’ but I think brands have been trying to move away from those lower price points for a while,” Acerra said. “Brands are willing to provide value to consumers as long as they can leverage guest purchase history to maximize the customer’s lifetime value over the long term.”
Apps help companies with that. Given how often people check their phones, an app on a person’s home screen is “like the billboard ad that keeps giving,” said Adam Blacker, director of content and communications for Apptopia, a data analytics company.
“The speed with which we look at it, the importance it has in you, just seeing that logo every day can have an effect,” he said.
Apps can also provide information about what and when customers order and what promotions they respond to, helping businesses refine their deals push notification strategies.
Yet rewards programs remain a relatively new and developing area for many companies. In the meantime, companies are offering more targeted deals by giving local operators flexibility.
McDonald’s executives said the chain will hold national promotions such as its $1, $2, $3 menu, but that regions can select which products to offer. Papa John executives also noted the leeway their restaurants have to adjust deals.
“A discount in San Francisco is different than a discount in Atlanta and Ohio,” CEO Rob Lynch said during the company’s earnings call.
But even as they become more targeted in the coming years, experts say fast food chains still need to keep offering eye-catching deals to attract certain customers.
“They may look a little different than in years past, but there will always be room for highly visible, low-priced items, driving traffic and higher margin add-ons,” says Schaefer of Euromonitor.