Daily Management Review

Low Consumer Spending Starts Price War In Fast Food In U.S.


04/30/2018




A fall in consumer spending have worried restaurant chains in the United States and a counter strategy of promoting cheap fast-food saw a surge in such deals during the first quarter.
 
It has been since 2002 that the “value” offers have been part of the U.S. fast-food industry, after McDonald’s Corp launched its popular Dollar Menu and presented a source of increasing customers for the industry.
 
In recent years however, the focus of companies like McDonald’s has been on investing in food quality enhancements to increase competitiveness and had shifted focus from such deals. The likes of upscale brands such Chipotle Mexican Grill Inc and Chick-fil-A were the priority of such companies.
 
However, in the first quarter of this year, there has been an increase in dollar deals. This happened at a time when the estimates for growth in consumer spending was below the 1.5 per cent mark. The rate had been 4 per cent in the previous quarter and this quarter’s rate is the lowest for the economy in the last five years.
 
According to NPD Group analyst Bonnie Riggs, while there was a 13 per cent increase in value menu sales, there was a 10 per cent growth in value menu traffic in the first three months of 2018,
 
According to NPD, three consecutive years of decline was reversed in fiscal year ended March 2018 because the value menu traffic was boosted by 1 per cent by the results.
 
 “It’s clear that major restaurant chain operators are pulling out all of the stops to get consumers to visit this year,” said Riggs, author of a new report titled “Value Wars 2.0: The Value Menu Strikes Back.”
 
In calendar year 2017, the total U.S. restaurant traffic was flat and this forced restaurants throughout the spectrum battling for more a bigger share of the market which is not growing.
 
In the latest price war, the low-priced food and “Dollar Cravings” value menu of Yum Brand Inc’s Taco Bell seems to be ahead of the competition.
 
NPD said that in the first five weeks of the first quarter, its new $1 Nacho Fries saw a record sale of 53 million orders.
 
There were no comments from Taco Bell.
 
A $1, $2, $3 value menu was launched by McDonald’s in January after the company had given up on its popular but low profit Dollar Menu in 2013, in order to win back customers.
 
That menu includes $1 any size soft drinks and cheeseburgers, $2 small espresso drinks and Bacon McDouble hamburgers, and $3 Happy Meals and classic chicken sandwiches.
 
The company was forced to offer a 2 for $4 “mix & match” deal on breakfast sandwiches such as the sausage McMuffin with egg after there was muted response from consumers.
 
There are however some concerns among some McDonald’s restaurant operators of loosing its way in the competitng deals.
 
“In 2002 we were one of the few chains discounting ... Today we are just part of the discounting noise,” one McDonald’s restaurant operator was quoted as saying in the latest McDonald’s Franchisee Survey from Kalinowski Equity Research.
 
(Source:www.reuters,com)






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