A sign advertising meal deals at a McDonald’s restaurant in Burbank, California, on July 22, 2024.
Mario Tama | Getty Images
Restaurant CEOs are becoming obsessed with the word “value” as they explain to investors why their sales are lagging this quarter and share plans to revive traffic in the coming months.
exist McDonald’s During last month’s quarterly conference call, executives mentioned the word “value” nearly 80 times, underscoring the fast-food giant’s top priorities.
McDonald’s isn’t alone. Other leaders of Taco Bell boss’s restaurant companies Yum Brands to a pizza chain papa john The word was also used several times during the recent conference call.
“The word ‘value’ has been getting a lot of attention over the past few months,” said Josh Kobza, CEO of Burger King’s parent company. International restaurant brandsaid Thursday.
There is a reason for this emphasis. According to the Bureau of Labor Statistics, the price of food taken away from home has increased 27.2% since June 2019. In response, restaurant traffic dropped and sales lagged as consumers spent less on dining out and no longer believed it was a good deal.
Many chains are hoping to re-engage customers with discounts and promotions, such as $5 meal deals at McDonald’s, Burger King and Taco Bell.
“During the current economic cycle, consumers have become more cautious in managing overall ticket sales and are more cautious about brands that offer compelling value,” Papa John’s chief financial officer Ravi Tanavala said on the company’s conference call Thursday. out preference.
Reputation value
McDonald’s’ Chris Kempczinski talks fresh beef expansion at a McDonald’s event in Oak Brook, Illinois.
Richard Naidu | Reuters
Many restaurant executives admit their chains have shortcomings.
For example, McDonald’s CEO Chris Kempczinski said his company’s value reputation has declined recently. In the second quarter, The burger giant reported that its U.S. same-store sales fell 0.7% year over year.
“Factors within our control also contributed to our poor performance, the most obvious of which was our value execution,” Kempczinski said on the company’s July 29 conference call. “For 70 years, McDonald’s has been a leader in our industry. With values defined, we are taking meaningful action around the world to maintain our leadership position.”
McDonald’s’ $5 meal deal was launched days before the end of the second quarter, but the value meal has been attracting lower-income consumers and has exceeded expectations, executives said. The chain will extend the promotion through August in most markets and is working with franchisees on long-term discount strategies.
Also, unlike McDonald’s and many other restaurants, Chipotle Mexican BBQ The report said same-store sales grew strongly in the latest quarter and customer traffic continued to increase. But the taco chain remains focused on value as it faces backlash from some customers who claim the company has been shrinking portion sizes.
Brian Niccol, CEO of Chipotle Mexican Grill
Adam Jeffery | CNBC
While CEO Brian Nicol denied the company has any plans to shrink the burrito bowl, he did say the chain will once again emphasize generous portion sizes to employees. After all, those sizable portions have helped Chipotle earn its reputation for value.
“The good news is that we’ve started to see our actions positively reflected in our consumer ratings, and our value proposition remains very strong,” Niccol said on the company’s July 24 conference call.
It’s not just fast-food executives who are focusing on value.
Catering brandCEO John Peyton told CNBC that the company that owns Applebee’s and IHOP is also seeing lower-income consumers cutting back on spending.
Customers making less than $75,000 a year don’t frequent Dine’s restaurants as often, and when they do, they stick to the value menu. Both Applebee’s and IHOP coverage Same-store sales unexpectedly fell this quarter.
“The second half of the year is definitely going to be tough, and it’s a battle for market share for our increasingly value-driven customers,” Payton said.
Value for shareholders
A drive-thru at a Burger King restaurant in Peoria, Illinois.
Daniel Acker | Bloomberg | Getty Images
The company not only considers providing value to customers, but also considers shareholder value. Restaurant stocks have been under pressure this year as investors grow increasingly concerned about the health of the industry. Shares of McDonald’s and Restaurant Brands are both down 10% year to date, while Starbucks‘The share price has fallen 21%. this S&P 500 Index It rose 11% during the period.
Concerns about the chain’s financial health aren’t limited to revenue. They’re also about profits, especially when companies tend to discount. While cheap deals may attract customers, they can hurt a restaurant’s profitability, impact revenue and harm a franchisee’s financial health.
And so-called value wars — in which chains try to outdo each other on deals — only exacerbate those concerns, as investors worry about the race to the bottom.
While this concern has yet to bear fruit, it’s still early days. So far it appears that talk of value and discounts is bringing some customers back.
Burger King, for example, was one of the first chains to launch a $5 value meal this summer. U.S. same-store sales were roughly flat during the quarter, but executives said the deal was attracting customers. Burger King now plans to launch the product in October.
When its competitors followed suit with $5 discounts, the Restaurant Brands chain didn’t see any noticeable impact on its business.
“There are actually some positives to the industry-wide focus on value,” Restaurant Brands’ Kobza told CNBC. “I think as more and more people talk about the incredible value our industry provides, it has the ability to Improving guest perceptions of value for money in this category really helps everyone.”
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