Value menus are back in a big way, and people are lovin' it
In the past decade, fast food chains have regularly turned to crazy limited-time-only menu options to bring in new customers. From the KFC Double Down using fried chicken as a “bun” to Taco Bell’s Doritos Locos Taco combing two of our favorite guilty pleasures to Burger King’s Whopperito burger-burrito hybrid and hundreds of more examples, the biggest names in the food industry have tried almost everything to momentarily hold our short modern attention spans. But despite all those efforts, turns out the biggest motivator to put fenders in the drive thru might actually be one of the oldest tricks in the book: very cheap food.
Yesterday, McDonald’s announced that its first quarter sales were higher than analysist estimates, thanks in part to the help of its recently relaunched Dollar Menu that now doles out items from three different tiers: $1, $2, and $3. This success is likely to exacerbate a trend that we’ve seen grow in recent months: a renewed emphasis on value menus.
Even before McDonald’s announcement, Reuters had already proclaimed, “U.S. fast-food price war flares.” According to NPD Group analyst Bonnie Riggs, in the first quarter of 2018, value menu traffic across the board had already spiked 10 percent, driving a 13 percent increase in sales. As those numbers would seem to indicate, and as McDonald’s confirmed during its earnings call, though value menu items lure people in with lower prices, they can actually increase the amount people spend. Specifically, MickeyD’s said their Dollar Menu increased the number of items that customers order at one time, and people who used the menu ordered more items than those who don’t.
With data like that, and now a proven model at the top of the fast food pyramid, other chains like Wendy’s and Taco Bell—who had their biggest new product launch ever by debuting Nacho Fries on its value menu—will likely continue to follow suit. “It’s clear that major restaurant chain operators are pulling out all of the stops to get consumers to visit this year,” said Riggs, who titled her new report, “Value Wars 2.0: The Value Menu Strikes Back.”
But if value menus work so well, then why did McDonald’s, who introduced the idea of a Dollar Menu back in 2002, then got rid of it in 2013, wait so long to bring it back? Well, as is the case with any sequel, there’s no guarantee it will be as good as the original, and some franchisees worry about going to war over prices. “In 2002 we were one of the few chains discounting,” one McDonald’s restaurant operator was quoted as saying by Reuters. “Today we are just part of the discounting noise.”
You see, value menus are actually quite the a gambit: Even though they’re intended to drive sales, according to CNBC, another major reason for McDonald’s strong first quarter was actually price increases, not from Dollar Menu items, but from premium products. Franchisees fear that lower margin value items could lead to less revenue and less profit, and clearly they could, if customers order from them exclusively. But at least for now, that appears not to be the case: Customers are happy to pull out their wallets for more expensive items as well. But hey, now you know value menus’ dirty little secret, so if you really want to get a value, keep your eyes off the main menu.