Earlier this year, Domino’s Pizza raised the price of its $5.99 “Mix & Match” value offer for delivery customers to $6.99, the result of inflation making it more difficult for the chain’s operators to generate a profit.
It was a notable move. Domino’s is among the most consistent value players in the industry. It had that price point for 12 years and had consistently pushed back against suggestions that it raise those prices. Last week, executives said they would raise the price for its carryout customers, too.
“Going from $5.99 to $6.99 on our delivery Mix & Match deal was the right move,” CEO Russell Weiner said. “Given the continued inflation we have seen, our analytics now indicate we should take pricing on our national carryout deal as well.”
But the move also highlights the current pricing environment. Restaurant chains believe more of their customers are looking for value, particularly those with lower- and middle-income consumers. Yet they have less ammunition to do so, given their own thinning margins and continued overall inflation. And most of the consumer base, while frustrated with inflation, does not appear to be flocking to discounts, either.
The result is a muted value environment. The aggressive value offers of yesteryear, such as $5 boxes and dollar menus, are gone, replaced by loyalty program incentives, higher price points and more targeted offers. As my colleague Peter Romeo pointed out this week, full-service restaurants are offering drink deals to get customers.
The clearest evidence of this shift comes from McDonald’s, which so far appears to be a big winner in the current environment.
The giant burger chain has not fully abandoned national value. The company has a $1 $2 $3 value menu that gives operators flexibility to add and remove and price items accordingly.
But most of its offers are either regionally targeted or are limited to its loyalty program, MyMcDonald’s Rewards—where coupons and discounts are rather frequent. For instance, there were 10 deals associated with that program as of this morning.
“It’s tough to talk about value these days in kind of a one-size-fits-all approach,” McDonald’s CEO Chris Kempczinski said in July, according to a transcript on financial services site Sentieo. “The beauty of what we’re transitioning to is a much more targeted approach toward value.”
Another example is Burger King. McDonald’s traditional rival had grown dependent upon value in recent years, relying on a set of aggressive discounts. The company last year offered a 2-for-$5 deal that included a Whopper. It pulled that sandwich off that mix and match deal, then priced it at $6 to account for inflation. It’s currently offering a Ghost Pepper Whopper and small fries for $6.50.
This is good for the company’s franchisees, who’ve seen their finances take a beating amid weak sales and weaker profits. “We’ve been able to pull back on promotions and discounts in this environment because the competition has also done that,” Paulo Pena, CEO of Burger King franchisee Carrols Restaurant Group, said in August, according to a transcript on the financial services site Sentieo.
“I think everyone is staying pretty disciplined on promotion discounts across the industry right now because they can.”
Contrast the current environment to 2018, when the economy was still in growth mode but the industry had grown competitive and some consumers began looking for value. That year, McDonald’s created the aforementioned $1 $2 $3 menu. Other chains priced meals at $5. Subway priced some sandwiches at $4.99. Wendy’s created its 4-for-$4 offer. Burger King’s four-year-long value push began that year.
To be sure, some companies have offered value this time around. Domino’s, for instance, cut all menu prices 20% for a limited time, at least in part to ease the sting of the higher value offer.
Yet on balance, prices on value are higher this time around. And those companies that have offered value haven’t necessarily blown the doors off their sales results. For this example we bring you Del Taco, which created a 20 Under $2 offer to counter inflation’s impact on its consumers.
The chain’s three-year same-store sales last quarter was 9.6%. By contrast, its rival Taco Bell’s three-year results were over 20%.