Fast food is back on the menu, but prices aren’t as cheap

Fast food value deals are back in full force after almost two years of hiding, but they look a little different.

For the first time in over two decades, Little Caesars has raised the price of its $5 Hot-N-Ready pizza. Popeyes’ Big Box deal is back four years later, only this time it’s an extra dollar for inexpensive food if you order it at a restaurant. And Domino’s Pizza will offer its $7.99 deal to digital customers only.

Faced with rising food and labor costs, restaurant chains are adjusting their high-value meals as they try to strike a balance between increasing traffic during less favorable months and maintaining margins.

“This is a very promotional time of the year. January and February are traditionally the time when you see a lot of promotions and discounts,” said BTIG analyst Peter Saleh. “I think restaurants are trying to get back some of the lost traffic that didn’t come back because of the pandemic, and a lot of them will need some discounts to get those consumers back to the door.”

The return of promotions means the restaurant industry is becoming more competitive, Saleh said. But now the chains are also raising the prices of their inexpensive meals or are focusing on promoting menu items that experience lower inflation.

“On television, almost no one tries to advertise chicken wings,” said Saleh.

From July to September, 17% more restaurant operators had inexpensive meals on their menus, compared to the same period a year ago, according to Technomic Ignite.

The cost of breakfast meals increased by 19.6%, while the cost of snacks increased by 11.5%. However, the overall average price for inexpensive meals was down 1.3% year-over-year, the researcher notes.

David Henkes, director of Technomic, said the decline in food costs, as shown in the data, could be due to restaurants shifting their focus to higher-margin time-limited offerings. He added that another reason could be fast food chains using cheaper ingredients or reducing portion sizes to make food look cheaper, even if it differs from the original cost of the meal.

Domino’s is one of the fast food chains that is changing its national promotions this year. CEO Rich Ellison told investors at a virtual ICR conference earlier this month that the decision was driven by higher food basket costs.

The first promotional offer to be changed is the $7.99 weekly takeaway offer. Chicken wings and boneless wings will not only be available to digital customers, but will also be reduced from 10 to eight pieces.

“Moving the offer online has several advantages,” Allison told conference attendees. “One is a more expensive ticket, two is a lower cost of service because we don’t have to answer calls, and the third is access to critical data.”

The pizza chain decided not to change the price of the deal due to the fact that customers are already familiar with the price of $7.99.

Popeyes uses a similar strategy. His Big Box deal will cost just $5 — his previous price — when customers order it for pickup through the fried chicken chain’s app or website. But if they order from a restaurant or an alleyway, they will have to pay an extra dollar. Restaurant Brands International said in a statement to CNBC that it designed this year’s promotion to drive digital growth.

The big chains aren’t the only ones adjusting their promotional menus. Leanna Olbinski, director of restaurant success for point-of-sale firm Table Needs, said she sees independent restaurants taking a new approach to judging food and putting more emphasis on using ingredients already stored in their refrigerators and shelves.

“For example, if you have a really popular burger that uses bacon, now we are going to make the snack available as a happy hour option using all the ingredients we already have,” she said.

However, some restaurant chains are planning fewer promotions. Olive Garden, owned by Darden Restaurants, will most likely never get its Never Ending Pasta Bowl deal back, new CEO Rick Cardenas said in the company’s December earnings report. El Pollo Loco interim CEO and CFO Laurence Roberts said in November that the chain would consider cutting discounts rather than raising prices on its menu. And Carrols Restaurant Group, the largest Burger King franchisee in the US, said at the virtual ICR conference that the lower discounts will continue through the first quarter.

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