The sun is nearly set on restaurant companies’ third quarter earnings calls and the biggest takeaway is probably not surprising to anyone – consumers are clamoring for value. After enduring about two years of historic inflation and outsized menu prices, consumers simply stopped going to restaurants as much toward the end of last year and the beginning of this year.
Restaurant brands, big and small and across segments, began implementing value strategies toward the end of the second quarter to win them back and Q3 marked the first full quarter of an all-out value war. Several executives noted the “complex consumer environment” during their company’s calls while outlining their varying strategies to navigate through it.
Value winners
There were several value winners, but McDonald’s may have taken the crown. The chain’s $5 Meal Deal launch toward the end of June bolstered its value perception and drove traffic and check, while same-store sales turned nominally positive (0.3%) after a rare decline in Q2.
“The $5 Meal is doing exactly what we set out to have it achieve. Those things are coming to life,” chief financial officer Ian Borden said during the company’s earnings call last month. The Meal Deal swung momentum in McDonald’s favor toward the end of Q3 and solidly into Q4 before an E. coli crisis squandered the company’s progress.
Of course, once McDonald’s committed to extending its Meal Deal, everyone else and their cousin jumped into the conversation, creating plenty of “noise,” as several executives pointed out, making it more difficult to perch atop minds despite the implementation of lower price points.
“What we're seeing is a very promotion-driven environment right now. And there's a lot of ‘noise’ out there for consumers to sort through when there are so many brands and so many categories offering so many promotions and deals, and so we have to make sure that we are very sharp in the right promotion, communicated the right way to drive traffic and repeat traffic,” Dine Brands chief executive officer John Peyton said during his company’s earnings call earlier this month.
Sequential improvements
Several chains were able to break through some of that noise toward the end of Q3 and into Q4, reporting sequential improvements of both sales and traffic, including Potbelly, Red Robin, Noodles & Company, Cheesecake Factory, Popeyes, Wendy’s, First Watch, and Papa Johns. Hurricanes Beryl and Helene likely muted some performances in the early part of the quarter, but otherwise most brands spent the past three months understanding their place in the swiftly evolving value environment and their consumers’ expectations amid such an environment, and they adjusted their offerings accordingly, likely leading to some acceleration.
Examples here include Popeyes, which experienced a rare same-store sales decline of 3.8%. During parent company Restaurant Brands International’s earnings call earlier this month, CEO Josh Kobza noted that the chain was “missing some of the offers consumers were looking for” and adjusted its strategy with introductions like the $6 Big Box.
“We’ve reoriented our marketing strategy to better align with the needs of consumers today, while reminding guests what makes Popeyes so special,” Kobza said. “We know we need to provide better value, which we can deliver through better price points and a better experience.”
Dine Brands also refined its value offerings toward the end of the quarter for both IHOP and Applebee’s.
“Our learning is that we've got to meet guests where they are, and the guest definition and expectation of value shifted over the last couple of quarters. They started to focus on the total cost of the meal and … It became clear that guests want to know the total cost of dining in a restaurant — for argument's sake, the cost of your sandwich plus fries and a drink,” Peyton said.
In response to this shift, Applebee’s launched a Pick 6 promotion in October and this week added a Really Big Meal Deal for $9.99. We can likely expect more such meal deals from Applebee’s in the near term.
“We're applying our learnings to this with a shift to more full meal value offers and we'll continue to evolve our value propositions to keep our guests engaged,” Peyton said.
Red Robin began adding weekday deals – like Monster Mondays and half-off kids’ meals – during the quarter in a bid to win back customers during slower days. This marks a shift away from the chain’s strategy put into place nearly two years ago and is a direct response to the competitive environment.
Papa Johns, which experienced a 6% same-store sales decline in the quarter, is also making adjustments to its value messaging. New CEO Todd Penegor said those changes are focused on a barbell strategy of core menu optimization and new menu items alongside the amplification of its marketing messaging to drive consideration.
“In this current economic cycle, consumers have become more deliberate in managing their overall ticket and are showing a preference for brands that are offering a compelling value. Throughout the third quarter, we shifted our efforts and investments towards initiatives that improve our value perception, while still protecting our brand positioning. These efforts are having a positive impact on transactions as we saw year-over-year momentum build throughout the third quarter,” chief financial officer Ravi Thanawala said during the company’s earnings call earlier this month.
Loyalty programs come into focus
Notably, Papa Johns is spending much of the fourth quarter revamping its loyalty program, fitting another major theme throughout the quarter: As brands jockey over more discerning consumers, loyal customers – who spend and visit more – are becoming more valuable. As such, loyalty programs have become a bigger priority of late.
Domino’s CEO Russell Weiner noted that his company’s program is “just getting started into its second year” and will be a major lever for the brand. McDonald’s is striving to reach 250 million active users by the end of 2027, while Chipotle is in the early stages of driving “more efficiency” with its loyalty members through an artificial intelligence model that identifies lapsed, at-risk, or active users for tailored messaging. Red Robin’s Loyalty 2.0, introduced in May, has nearly doubled the prior program’s run rate, while new member transactions increased 141% versus last year.
Shake Shack is making significant investments to develop a loyalty program in 2025, which CEO Rob Lynch said presents the opportunity to “deliver enlightened hospitality in a world that increasingly craves it, but across a digital footprint.”
Sweetgreen is also refreshing its loyalty program in the first half of 2025, executives noted on the company’s earnings call. The Sweetpass program was initially introduced in 2023 and CEO Jonathan Neman said the iteration will focus on creating “more of a direct relationship with our customers … and we think that will be a large lever.”
Overall winners, stragglers, and ho-hums
As has been the case for the past several quarters now, brands with the strongest performance during the quarter included Texas Roadhouse, Wingstop, Chipotle, CAVA, and Taco Bell. Sweetgreen and Brinker had plenty of reasons to write home after their respective calls as well, while Shake Shack’s same-store sales grew for the 15th straight quarter, and Dutch Bros was “stronger than expected” at +2.7%.
Dutch Bros’ competitor Starbucks, however, continued to struggle amid a CEO transition, with Brian Niccol’s first call at the helm including -6% same-store sales in North America and -10% in transactions. Other stragglers during the quarter included KFC, down 5% and marking the chain’s third straight quarter of mid-single-digit declines. Applebee’s and Popeyes were also down more than expected, while Noodles & Company’s negative 3.3% same-store sales performance and -5.8% traffic drove the company’s share price under $1 following its call.
Otherwise, metrics were pretty ho-hum during the quarter – up or down nominally or relatively flat. The quick-service segment – aside from Taco Bell – was especially weird this quarter, with burger brands falling into that flat range (McDonald’s at 0.3%, Burger King at -0.4%, and Wendy’s at 0.2%) and chicken brands flailing against an intensified category filling with upstarts (Popeyes at -3.8% and KFC at -5%).
Of course, this recap is focused entirely on domestic performances. China’s strong consumer headwinds and markets impacted by the war in the Middle East merit an entirely separate discussion.
As for what’s next? Let’s just hope those repeatedly reported “sequential improvements” toward the latter part of the quarter and into Q4 continue to hold through the end of the year and into 2025. The industry sure could use some stabilization right about now.
Contact Alicia Kelso at [email protected]
