August 14, 2024
A price war is brewing in the fast-food industry, with McDonald’s ( MCD ) and Burger King of Restaurant Brands International ( QSR ) recently announcing $5 “value meal” promotions, joining companies trying to win over inflation-weary consumers.
Both deals are expected to be temporary promotions, with Burger King reportedly racing to launch its meal before McDonald’s, which will begin its promotion June 25. Wendy’s ( WEN ) also announced its own $3 breakfast deal earlier this week, with no set end date.
The moves come as companies across a number of industries have acknowledged inflationary pressures weighing on customers.
McDonald’s CFO Ian Borden said earlier this year that inflation was affecting the chain’s sales as lower-income consumers pulled back on spending at restaurants. The chain’s global operations have also been hit by boycotts and conflict in the Middle East.
Companies outside the fast-food industry are also moving to lower prices or offer discounts to appeal to stretched consumers, with Target ( TGT ) recently announcing plans to lower prices on some 5,000 of its frequently shopped items over the course of the summer.
In last week’s earnings call, Walmart ( WMT ) executives said inflation has positively affected their sales, as the world’s largest retailer’s reputation as a destination for lower prices has boosted its market share among high-income consumers as inflation has tightened budgets.
Some fast-casual restaurants like Chipotle ( CMG ) and Sweetgreen ( SG ) have notably resisted the trend of price cuts, as executives have said in recent earnings calls that higher-income consumers are driving their sales, suggesting they feel less pressure to cut prices .
TD Cowen analysts also reportedly noted that many fast-food chains hiked prices more rapidly than fast-casual chains last year, narrowing the price gap between the two segments, which may have benefitted fast-casual chains by raising perceptions of the value of their offerings.
