As we enter the summer season, the restaurant industry finds itself in the midst of a familiar battle: discount wars. In less than a week, McDonald’s is unleashing its month-long $5 meal deal promotion, the fast-food giant’s latest attempt to woo customers back and turn up the heat on this summer blockbuster. Will McDonald’s promo be enough to triumph and win back value-conscious guests?
Setting the stage: Economic landmines
After what looked to be three months of progress, economic anxiety across America shot up 5 percentage points, from 31% in April to 36% in May. Meanwhile, the 20% of consumers who say they are “spending as usual” is the lowest level we’ve seen in over a year.
This isn’t just a restaurant problem – consumers are pulling back across the board. From our May data among 1,000 consumers 18+ years old, here is the percentage who say they participated in each activity sometime in the past 6 months:
- 67% dine-in at restaurants (-9 percentage points vs. Q1 average)
- 40% go to the movies (-8 points)
- 63% go shopping at a retailer (-8 points)
- 17% fly on a plane (-7 points)
- 42% get hair done (-6 points)
It's no secret that restaurants are hurting. As price increases continue to frustrate consumers, the impact on restaurant visit frequency is increasingly being felt as time goes on. More than half of restaurant customers (52%) say that restaurant prices have gone up too much, while only one third (34%) feel that their most recent restaurant experience was “definitely worth it.” That math just doesn’t work.
If you’re familiar with my data, you may have noticed that the 52% of restaurant customers who are frustrated with price is down significantly from Q4 last year. While this may seem like a good thing, when paired with the visitation data, it implies that those who are most frustrated have simply given up. Not good news at all.
Delivery isn’t faring better than dine-in; 62% agree/strongly agree that “getting restaurant food delivered is so expensive, it’s just not worth it anymore” and 19% have even made a conscious decision to use delivery less often over just the past 3 months.
With economic uncertainty on the rise, prices up, and many past their breaking points, consumers are non-shockingly looking for lower costing food options and trading down in a variety of ways. Where are those in search of low-cost food alternatives turning? Some 31% say grocery store delis/food service areas, and 25% say convenience stores.
We’ve seen this movie before
When operators take price over and over, it drives guests to lower-cost options. Then operators are forced to deal back prices to compete. It’s a tale as old as time in the restaurant industry. I often try to remind people that while discounting drives a short-term boost, more often than not it also drives disloyalty. Over-discounting creates customers that only buy on deals, or worse, those that are ready to jump ship to the next deal a competitor offers.
While customers are searching for value, the idea of value is defined in terms far greater than just cheap food. When the base of the value equation is fortified through experience, discounting can definitely actually prove to be successful at winning long-term customer loyalty.
Chili’s $10.99 deal thrived by tailoring to price-conscious customers by offering a lower price than you can get at QSR, while maintaining the degree of hospitality and experience that you would expect from Chili’s. While price is obviously a key factor, customers want to trust that their order will be right, the food will be good, and that the experience as a whole will be worth it.
So what will the sequel look like?
McDonald's’ latest promotion focuses on emphasizing value, meeting customers where they are at and reaffirming the principles that McDonald’s stands for.
"Great value and affordability have always been a hallmark of McDonald's brand, and all three legs of the stool are coming together to deliver that at a time when our customers really need it," McDonald's franchise owner John Palmaccio said in a recent CBS News interview.
Burger fast-food restaurants are already the most common option for trading down. With McDonald’s’ $5 meal deal only days away, and 34% of recent fast-food goers planning to take advantage, are other chains in for a rough July?
But we wanted to go farther to predict which chains might be impacted when McDonald’s launches. Of more than 23 QSR restaurants that consumers have visited in the past 30 days, here are the top nine who are at risk of losing market share to McDonalds' $5 meal deal (the percentage of past month brand users that report they “definitely will take advantage of the McDonald’s $5 Deal”):
- 46% Hardee’s
- 44% Krispy Kreme Donuts
- 43% Pizza Hut
- 42% Sonic
- 40% Jimmy John’s
- 37% Subway
- 37% Wendy's
- 37% Domino's
- 36% Dunkin’
- 36% McDonald's
Guests of those top 5 major QSR chains are more likely to take advantage of the McDonald's value promo than McDonalds' own recent customers!
Lest we forget: For every trend, there is a countertrend. Five brands are more insulated with fewer of their guests being interested in the new McDonald’s deal. They have more loyal, cult-level customers. These brands who appear the most resilient haven’t won their guest loyalty with discounting, they’ve won it with consistency and high-quality experience:
- 31% Chick-fil-A
- 26% McAlister’s
- 25% Jack-in-the-Box
- 24% Carl’s Jr.
- 15% In-N-Out
And that’s a wrap
Brands aren’t going to win long-term by making their prices the lowest out there; they’re going to win by providing a better and more consistence experience for a competitive, affordable price.
If you’re an operator, it’s easy to get thrust into the constant race to the bottom of discounting. Not all brands can afford to discount in the way that McDonald’s does. But that’s alright! Any brand can double down on experience and use that to uphold the value equation, instead of discounting.
While price is crucial, at the end of the day, customers seek value and just want it to feel like the money they spent was worth it.
AUTHOR BIO
Lisa W. Miller has over 30 years of consumer insights and innovation experience collecting nearly a million consumer interviews qualitatively and quantitively. Lisa conveys excitement, hope and real hands-on tools to revamp organizational goals and growth. She strategically transforms companies and improves bottom-line results by using the “DNA” of the Business of JOY.
Lisa is a 3-time EFFIE Winner for Advertising Effectiveness, recipient of the David Ogilvy Research Award, and is an expert in consumer insights.
Lisa is the author of the book, The Business of JOY, based on over 55,000 consumer interviews and countless hours spent interviewing business leaders and frontline employees. It gives a 360-degree view of the pandemic — translating insights into an actionable framework for the future. Lisa’s data became a leading indicator of economic recovery. According to Lisa, “Economic recovery and growth begin when JOY is greater than Fear.”