McDonald’s, Burger King, Chili’s, Chipotle, Subway: Fast-food chains fight for low-income customers by offering cheap summer meals

As summer approaches, fast-food chains are aggressively promoting value-priced meals to attract budget-conscious customers. The latest trend is major players like McDonald’s, Taco Bell, Burger King and Wendy’s bringing back the $5 price tag to recapture foot traffic and boost sales amid economic uncertainty.

$5 Meal Deal Back

A decade ago, Subway began phasing out its popular five-foot sandwich. Today, other fast-food giants are bringing back $5 meal deals to appeal to customers who have reined in their spending. The strategy comes in response to the noticeable decline in customer visits and sluggish sales that many restaurant companies reported in their second-quarter earnings. Chipotle remains a rare exception, showing resilience in the face of the broader industry’s downturn.

Despite efforts to lure more customers, Wall Street remains skeptical. McDonald’s, for example, has seen an increase in traffic thanks to its $5 promotions, but analysts don’t expect the offers to significantly increase sales.

Economic pressures and changing consumer behavior

Fast food has historically fared better than other sectors during recessions. But the recent trend of rising prices has led many consumers to see fast food as less of a bargain. A LendingTree study found that more than 60% of respondents have cut back on fast food spending because of the high costs. This shift has particularly affected low-income customers, a key demographic for fast food chains.

In response, casual dining establishments like Chili’s have marketed their offerings as more affordable alternatives to fast food. This strategy has helped casual dining chains take some market share from fast food establishments. According to Darden Restaurants CEO Rick Cardenas, this change in consumer behavior is evident in their increased customer numbers.

Investor and franchisee reactions

The decline in fast-food customers has not gone unnoticed by investors. Shares of McDonald’s, Restaurant Brands International, the parent company of Burger King, and Wendy’s have all fallen twice this year. Yum Brands, the owner of Taco Bell, also saw a small decline, while the S&P 500 is up 14% in 2024.

Franchisees, who often bear the brunt of promotional costs, are also wary of new value-for-money meal deals. Many oppose such initiatives, fearing they will eat into profits. McDonald’s franchisees, for example, formed the National Owners Association in 2018 to oppose the company’s discounting strategies.

Can good value meals lead to larger purchases?

Fast-food chains typically offer discounts and value meals in the first quarter to appeal to budget-conscious and post-holiday consumers. But this summer, the need for discounts has extended into the warmer months to boost traffic and sales.

The goal is to increase customer visits and convert bargain hunters into higher-priced shoppers through additional purchases. Without this conversion, discounts can become unsustainable and further erode profits.

Warning about the subway

Subway’s 5-foot deal, once a customer favorite, ultimately led to profit erosion and operational challenges, resulting in restaurant closures and disgruntled franchisees. The story is a cautionary tale for today’s fast-food chains that rely heavily on value meals to drive sales.

Market Outlook and Future Earnings Reports

McDonald’s is set to report second-quarter earnings on Monday, followed by Wendy’s on Wednesday. Restaurant Brands and Yum Brands are set to report their quarterly results next week. Analysts are expecting disappointing earnings reports, reflecting broader industry problems.

Application

The fast-food sector is competing fiercely to attract low-income customers with value-priced summer meals. As economic pressures mount, these promotions are designed to stabilize traffic and sales. But the long-term viability of such strategies remains uncertain, raising concerns among investors and franchisees alike.