MIAMI -- After raising prices with premium products like salads and oversized sandwiches, fast feeders are finding that customers still want the deals promised by value meals, reported Nation's Restaurant News.
Chains such as McDonald's, Wendy's and Taco Bell have national value menus, which observers say could become more popular this winter if consumers are squeezed by higher energy costs. And although Burger King does not have a national value menu, the Miami-based company is looking to create one, said the report. It is experimenting with at least [image-nocss] two versions: one in Los Angeles that offers an array of daily options for $1; and another in Minneapolis with a similar lineup, but with prices from 99 cents to $1.29.
Wendy's, which scrapped its longstanding 99-cent Super Value Menu in May for a new program that offered expanded options and price points, could be rethinking its strategy, according to the report, citing restaurant analyst Peter Oakes of Piper Jaffray. Customers seem especially unhappy that the price of the popular Jr. Bacon Cheeseburger rose 30% to $1.29, Wendy's franchisees said.
Wendy's Value Choices Menu has suffered from poor consumer response and reduced usage Oakes of Piper Jaffray noted in a report cited by NRN. He said that part of the brand's recent poor same-store sales showing appears due in part to the confusion associated with the Value Choices effort, and he expects management to retool their value offering with fewer items and a singular 99-cent price point.
A spokesperson for the Dublin, Ohio-based burger chain said Wendy's continues to evolve and enhance our entire menu, with additional changes slated for 2006. But he added: We're not in a position to discuss our plans now for competitive reasons.
KFC is advertising in Southern California and Chicago markets three value-oriented dinners for $4 each. The dinners come with mashed potatoes and gravy, cole slaw and a biscuit along with the choice of a chicken breast, leg and thigh, or three crispy chicken strips.
Also in Southern California, Subway is advertising for a limited time a daily special after 4 p.m. called Dinner For Two. Two-Night! The $7.99 deal includes two regular 6-inch subs, two bags of chips and two drinks. Also, in that market, the chain is promoting all day on Sundays two foot-long subs for $7.99.
Despite the renewed interest in value, restaurant consultant Stuart Morris, president of Coronado, Calif.-based QSR Consulting Group, warned that too much reliance on 99-cent advertising by quick-service chains could revive a discount war. That would ultimately hurt the industry as it did in late 2002 when McDonald's and Burger King promoted signature sandwiches for under $1, he told NRN.
Morris said he would like to see chains follow Taco Bell, which often is credited with popularizing the value menu concept in the late 1980s and has again changed the pricing landscape. More than a year ago, Taco Bell broke the $1 barrier by launching nationwide a seven-item value menu with offerings priced as high as $1.29. Dubbed the Big Bell Value Menu, it features dishes ranging from a half-pound bean burrito for 99 cents to a half-pound beef and potato burrito for $1.29.
Morris predicted that, with efforts like those at Taco Bell, it is likely that McDonald's, Burger King and most other QSR chains will broaden their value menus beyond a specific 99-cent or $1 price point.
McDonald's launched a national Dollar Menu in the fall of 2002. Offerings include fries, soft drinks, a side salad, two apple pies, the McChicken and a Double Cheeseburger. The menu has been controversial with some franchisees, who insist its food costs are too high to sell at a discounted price. McDonald's locations in downtown Chicago, for example, do not always sell the Double Cheeseburger for 99 cents. A chain spokesperson told NRN that there are some limited menu variations in a few markets around the country.
Burger King is testing in Los Angeles a lineup of six items available for $1 each, including a Whopper Jr., two tacos, a cheeseburger with barbecue sauce, onion rings, a side salad or fries. In Minneapolis, it is promoting a value menu that includes similar offerings for 99 cents, except the Whopper Jr., which is priced at $1.29. The menu also includes mozzarella sticks, a new product, at $1.29. Burger King launched a 99-cent value menu in the fall of 2002 with 11 items, but eventually made it an optional offering.
Nath Cos., Bloomington, Minn., which has some of its 89 Burger King stores involved in the test, declined to provide details.
Alan Vituli, chairman and CEO of Syracuse, N.Y.-based Carrols Corp., Burger King's largest franchisee, said that a value menu is a critical component of the chain's strategy. He added that once a value menu becomes a permanent offering, it allows Burger King to continue to introduce premium full-margin products.
Jeff Rogers, president and CEO of Downers Grove, Ill.-based Burger King operator Heartland Group, said that the chain needed continuity and that he was pleased that the company's management is taking the time to do testing in a variety of geographic areas.
Wendy's national Value Choices Menu features 14 items for 99 cents each. These include chicken nuggets, a Jr. Cheeseburger Deluxe, fries, soft drinks, a small Frosty, a sour cream and chives baked potato, a small chili, a side salad, a Caesar side salad and mandarin oranges. The menu also offers a $1.19 Junior Smoky, a $1.29 Jr. Bacon Cheeseburger, a low-fat strawberry flavor yogurt for $1.29, and a $1.29 Fix n' Mix Frosty.
But analyst Oakes noted that the breadth of the offerings combined with pricing above $1 has diminished the impact of the menu for Wendy's. In first-quarter 2006, he said, he expects Wendy's to focus on promoting the Jr. Bacon Cheeseburger, chili and baked potato for 99 cents each.
Joe Cunnane, president and COO of Crofton, Md.-based Wendy's franchise group DavCo Restaurants, described 99 cents as a magical price point, especially for core items like chicken nuggets and the Jr. Bacon Cheeseburger. If we can increase our transaction base, we will offset any margin decline, he said.
Wendy's franchisee Mike Givens agreed that Wendy's needs to have a compelling value strategy. The bottom line is that we lost some transactions, and we are figuring out how to bring them back. The customers are speaking loud and clear that they always want a compelling value.
Roger Webb, another Wendy's franchisee, described 99 cents as an important number to consumers, especially with the current economy and competitive environment. He insisted that Wendy's could make 99-cent offerings profitable, the report said.
Morris described Wendy's third-quarter same-store sales decrease of more than 5% as alarming and said it clearly calls for drastic incremental-transaction-driving strategies. But he predicted that if Wendy's advertises discounted offerings, some rivals would follow suit. The net result is a fast-food landscape of low-priced menu items driving down guest check averages and profit per transaction, he told NRN. Why would any QSR chain motivate a guest, who normally buys a combo meal, into buying a $1 burger? It's a great way to lose money.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.