As customers tend to eat less in restaurants than before, fast-food businesses are combating the threat by presenting more low-priced meal offers, which some of the industry foreseers have termed ‘value war.’ This was the view of El Pollo Loco boss Elizabeth Williams, who opined that there has been a ‘value war’ between the chains seeking for the budget diners. In this engagement, $5 meals have become the focus for many brands, where practically all brand chains such as McDonald’s, KFC, Popeyes, and Burger king have launched advertisements for the so-called $5 meal deals. Recently, El Pollo Loco launched a special offering whereby every Tuesday customers get a taco for only five dollars, and soon they will bring out a similar chicken bowl.
Marketing analysts point out that meals at $5 serve a particular need without over pricing. While a meal that sits at this range will still not be enough to pay all taxes, its ‘cheap’ status appears so reassuring to the customers. To illustrate this, Joseph Nunes, a marketing professor at the University of Southern California, also states that although people do not always have to pay with a five-dollar bill, the idea of paying five dollars is psychological and enhances affordability. Applied economist Melina Palmer goes further to state that $5 is easy to grasp for the buyers because such persons are used to the concept of counting by fives.
Despite the promotions, fast-food chains have seen only modest increases in foot traffic. Data from Placer.ai shows that visits to U.S. quick-service restaurants were up just 0.2% in the third quarter of this year compared to the same period last year. McDonald’s credited its $5 meal deals for helping to bring back some low-income customers for the first time in over a year. CFO Ian Borden noted that diners who choose the $5 deal tend to spend less on each visit but return more frequently, making them a valuable part of the company’s customer base.
They have also started expanding the new price point to other markets. KFC, for example, has recently introduced a new offer that includes a $5 meal containing chicken tenders and fries after experiencing weak sales. According to ‘Yum Brands’, the parent company of KFC, the same store sales of KFC restaurants declined by 5 percent in the third quarter as a result of heightened competition, as explained by its President David Gibbs. Recently, more of such $5 deals have been seen in disperse outlets from the mother company of Popeyes and Burger King ‘Restaurant Brands International’.
El Pollo Loco is quite aggressively embracing the $5 price point as it seeks more diners into its outlets. The firm’s Tuesday taco offer will also go on until the New Year, while the ever-popular pollo bowl will retail around December for $5. As per Williams, El Pollo Loco has also registered lower same-store sales in the recent past and she relates this to, among other things, value sensitivity among the consumers. She said that there is a shift with consumers seeking such $5 meals because they are affordable due to the current cost of living.
As these promotions continue to roll out, fast-food chains are also hoping that the mathematics of the $5 price policy will entice many more patrons into the fast food deserts even if other economic factors restrain them from eating out too frequently. Rather than just bringing them in for the occasional cheapest meal, they are hoping to drive this group of customers to return again and again for reasonably priced food so as to gain their loyalty.
