Value Meals on the Rise in QSR
*From the Book of Brands insert in September issue of Franchise Times
The infamous dollar menu has reached its dying days. As commodities and minimum wage steadily rise, it has become all but impossible for QSR establishments to offer substantial $1 or $2 options and still make a profit.
In order for franchisors and marketers to create sufficient value for consumers, a new trend has hit storefronts in recent years: the meal deal. The new $4 or $5 meal deals offer franchisees extra opportunities to make a profit, and give consumers $1 items they’ve come to expect from QSR establishments. It’s just in a different format.
The general format is as follows: The chain offers a main entrée, such as a burger, hot dog, or sandwich, a possible second entrée such as chicken nuggets, and sides like fries and a drink. In an effort to differentiate themselves from competitors, many of these chains offer desserts as a fourth or fifth option.
Wendy’s kicked these so-called “Burger Wars” off in the fall of 2015 when it launched its 4 for $4 meal deal, which offered choice and value for consumers on the go, while increasing the average ticket for value-seeking consumers.
“Wendy’s was the first one out of the gate to do this, and that’s critical,” John Gordon, master analyst of financial forensics at Pacific Management Consulting Group, said. “They didn’t do these tiny little dollar items.”
The promotion saw immediate success as Wendy’s promoted the 4 for $4 deal alongside its salads and sandwiches. North American same-store sales increased 4.8 percent in the fourth quarter of 2015, setting off a chain reaction with other leading QSR franchises wanting to get in on the bundles.
Burger King followed suit with a similar 5 for $4 platform propped up alongside a 2 for $5 deal. McDonald’s was one of the last big burger joints to jump in, launching a McPick 2 promotion where a customer could pick from a McDouble, McChicken, small fry, or mozzarella stick option.
Unsurprisingly, franchisees weren’t happy with the 2 for $2 deal, which decreased average ticket sales and limited profits. The company discontinued the promotion and followed it up with a 2 for $5 platform that offered premium options like the Big Mac and Quarter Pounder, giving consumers a deal while giving franchisees a better bottom line.
Checker’s/Rally’s restaurants were one of the many organizations to offer meal deals. The combination restaurants offer a 2 for $2 deal to drive initial traffic, as well as a 4 for $4 meal on the back lot to satisfy larger cravings.
In offering these meals, Chief Marketing Officer and Executive Vice President Terri Snyder stuck to the mantra that value equals a dollar per item in QSR.
“What’s happening in the category is there’s a lot of snacking, and I call them mini meal occasions. We think about 60 percent of our occasions fall within that mini meal/snacking occasion,” Snyder said.
These “mini meals” have been targeted specifically at millennials, who eat on average 4.2 times per day, according to Snyder’s research.
“What consumers have done is they’ve tried to figure out a way to spend $5 for lunch in different kind of ways,” Snyder said. “You see all these $4 and $5 meal things happening in the category to fill that void.”
The value meals have brought Checkers/Rally’s a boost in sales and traffic, and the franchise plans on offering value meals as an ongoing value proposition.
“We’ll continue to offer sort of unique desserts and unique sandwiches to bring to the offering,” Snyder said. “The premise of the deal—a choice of sandwich, a drink and a dessert—is a really powerful platform.”
Sonic took a different approach with its “Boombox,” introduced in June 2016. The promotion included a drink, fries and a burger, the same items offered by many of its peers. However, Sonic also included hot dogs, adding new menu items like the Loaded Cheddar Dog.
“It’s a full meal solution. We know that our consumer is looking for value, and this gives them the ability to build a meal. It’s very accessible to them,” Sarah Beddoe, vice president of marketing for Sonic, said.
The limited time deal proved to be successful, and was extended for another month.
While the trend has certainly caught on, not all QSR franchises choose to offer value meal bundles. Jack in the Box is one of the few fast food chains that refuse to get in on the bundle deals. “Jack in the Box already has a 99-cent taco on the menu which they consider to be their low-end item,” said Gordon.
Food commodity costs, beef in particular, have declined over the past 18 months. Many observers, Gordon included, feel that the decline in food commodity costs provided an opening for QSR restaurants to implement the discounting.
The lower-priced commodities likely won’t last for long, and pricing platforms will only get more complicated with rising minimum wages.
More of these value meals will be introduced in the coming years, but the prices will likely rise. QSR companies will have to continue innovating as $5 boxes or bundles may be forced to become $6 or $7 deals.