McDonald’s decision to lower prices on its combo meals and bring back the Extra Value Meals moniker has had a predictable impact on the fast-food sector.
Several restaurant chains have introduced new value deals this week, including Wendy’s, which is now selling an $8 combo meal featuring two of its Jr. Bacon Cheeseburgers, fries and a drink. The company says that the offer effectively gives customers a Jr. Bacon Cheeseburger for free.
Jack in the Box, meanwhile, is cutting the prices on many of its combo meals, with most of them under $10. It is also promising a host of value deals over the next several weeks, including a $5 Smashed Jack burger next week, during “Burger Week.”
Several other chains over the past couple of weeks have started offering new value deals, including Little Caesars and White Castle.
McDonald’s this week intensified a year-long fast-food value war by convincing franchisees to cut prices on combo meals by 15% from the prices of the items bought individually. According to a Restaurant Business analysis of Technomic Price Pulse data, the result lowered prices of those combo meals by an average of 50 cents apiece nationwide—though the actual cut will vary based on location and combo meal.
Not all fast-food chains have felt necessary to respond and one industry executive said privately that their existing combo meal discounts were already as strong as the ones McDonald’s is now offering. And indeed, Wendy’s, McDonald’s and Jack in the Box all average discounts close to or higher than 15% on their combo meals.
The issue highlights the challenge for fast-food chains at the moment. With consumers cutting back on restaurant visits, particularly at fast-food chains, executives are pushing harder than ever to search for ways to get customers interested.
Yet an intensified discount war is also one of the last things many of them want. As it is, profitability has taken a hit over the past couple of years, the result of high costs coupled with slower sales.
McDonald’s own franchisee cash flow is down 10% compared with post-pandemic highs. What’s more, the company acknowledges particular profitability challenges in high-cost markets, notably California—where fast-food chains are required to pay workers at least $20 an hour.
The chain’s competitors are in the same boat. And among the largest fast-food chains only the privately-held Chick-fil-A has stronger average-unit volumes than McDonald’s $4 million.
It’s worth noting that many chains aren’t just pushing discounts in the current environment. Limited-time offers are at record levels. Partnership deals are more commonplace. Wendy’s this week, for instance, introduced a new line of cold beverages, including energy drinks and cold brew coffee. Jack in the Box plans to debut an AI-powered game within its mobile app.
Burger King, for what it is worth, has largely kept new offers limited to deals targeted at members of its Royal Perks loyalty program.
Exactly how all these strategies will work remains to be seen. But for now, bigger deals are on the menu.
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