Fast-food franchise owners and squeezed customers test the limits of the value meal economy
What specific value menu items are being offered by McDonald's, Wendy's, and Burger King in response to consumer price sensitivity?
McDonald's is offering a $5 value meal which includes a McChicken or McDouble, four-piece chicken nuggets, fries, and a drink5. Wendy's is rolling out a $3 breakfast consisting of a bacon or sausage, egg, Swiss cheese, and croissant sandwich, along with a small order of crispy seasoned potatoes (drink not included). Burger King is offering one of three sandwiches or nuggets, plus fries and a drink as part of their value deals.
According to Shubhranshu Singh, why are the $5 value meals not sustainable as a permanent menu item for franchisees?
According to Shubhranshu Singh, a professor at Johns Hopkins University, $5 value meals are not sustainable as a permanent menu item for franchisees because the cost of ingredients and other factors have increased significantly. If franchisees were to sell these value meals regularly, they would lose money on every customer who buys them. Additionally, fast-food chains are facing inflationary pressures, making it difficult to offer cheap meals consistently.
How do franchisees like Scott Rodrick view the impact of inflation on their operations and customer spending behaviors?
Franchisees like Scott Rodrick view the impact of inflation on their operations and customer spending behaviors as a significant challenge. Rodrick, who owns 18 McDonald's franchises in Northern California, has described the situation as a "rollercoaster" since the new minimum wage of $20 per hour went into effect on April 1. Inflation has not only affected wages but also the cost of ingredients, packaging, and other operational expenses.
Rodrick and other franchisees are concerned about the margins shrinking as they try to provide relief to inflation-squeezed customers. They need to find ways to lure customers into purchasing additional items or gain market share over competitors to make up for the lost revenue from value meals. In high-cost markets like California, it has become increasingly difficult for fast-food restaurants to turn a profit on value meals unless customers also buy additional items with higher margins.
Despite these challenges, franchisees are trying to adapt and survive by implementing various strategies, such as adjusting prices, evaluating capital expenditures, optimizing labor efficiencies, and seeking to expand their market share. While layoffs are considered the last resort by Rodrick, the thought of leaving California and operating franchises elsewhere has crossed his mind a few times. However, his current focus remains on survival and finding ways to make the business sustainable in the long run.