Why are fast food chains suddenly offering discounts?

Credit: Illustration by Stephen Kelly / Getty Images

They call it the “summer of food deals.” Restaurant chains like McDonald’s, Burger King and Starbucks are “encouraging accessibility to products as consumers prefer to eat at home,” Axios Prices at fast food chains have increased by 31% since the pandemic, which has “squeezed out many people who turned to fast food restaurants as a cheaper alternative.”

“Price promotions are a risky bet,” CNN The $5 deals could revive flagging sales, but the low prices also “eat into margins.” And there’s no guarantee it will work. McDonald’s, whose month-long deal includes a small sandwich and chicken nuggets, along with fries and a drink, rolled out a new menu in 2018 with $1, $2 and $3 items. That effort “failed” to boost traffic, one analyst said. But chains feel they have little choice now. “There’s a battle to try to hold on to market share.”

What did the commentators say?

“Americans are crazy about inflation. McDonald’s just admitted they were right,” Helaine Olen said on MSNBC. Inflation is slowing, but “a lot of people are still telling pollsters that the cost of living is way too high.” Retail numbers are slowing, and restaurant traffic is down. The new $5 meal from America’s most popular restaurant chain is an acknowledgement that its “customers have reached a breaking point.” Restaurant chains didn’t cause inflation, but they contributed to it by trying to see how high they could raise prices. Now? “The bill for years of price increases and record profits is coming due.”

The discounted meals may be “too little, too late,” said Fast Company’s Ellie Stevens. McDonald’s new offering has actually shown some customers just how much more expensive the company’s other options have become in recent years. The result? One executive recently “admitted that some lower-income consumers are choosing to cook at home rather than buy McDonald’s products.” It could be hard to lure them back. “Time will tell whether next month’s temporary offer will entice enough people to return to the Golden Arches.”

After that ?

McDonald’s franchise owners believe the discounted meal deal can’t last, CNBC reported. McDonald’s regular combo meal offers franchisees profits of up to 10% per meal, but the discounted meal represents a profit of 1% to 5%. “There’s just not enough profit” to support the deal, the National Owners Association board of directors said. However, the company may be calculating that the deal is acting as a loss leader. “They’re hoping you’re going to bring your friend, who’s going to order that Double Quarter Pounder with Cheese meal,” one analyst told MarketWatch.

Not all restaurant chains feel the same way, according to CNN. “We don’t do it,” said Rick Cardenas, CEO of Darden Restaurants, Olive Garden’s parent company. Why? For one thing, Olive Garden has held its line on big price hikes even during times of inflation, instead instituting “relatively moderate price increases and avoiding deep discounts.” Slow and steady wins the race, Cardenas said, not big discounts that are inevitably temporary. “The way we do it,” he said, “is more sustainable.”

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