Inflation is putting QSRs in a bind with menu pricing, with all options posing serious challenges.
While some major brands are scaling back their value menus, their margins unable to accommodate these deals amid rising costs, Del Taco is going the other way, taking advantage of others’ retreat to differentiate its low-price offerings.
On Thursday (Jan. 5), the company announced an updated value menu, offering 20 items for under $2.
“Almost all brands have abandoned any kind of material value menu,” Tim Hackbardt, chief marketing officer of Del Taco, told PYMNTS in an interview. “There are some who may have a few items, but there isn’t another brand close to our size or larger that has one with 20 items.”
While “almost all” may be an exaggeration, there is truth to the claim that other quick-service restaurants (QSRs) have been scaling back their offerings. For instance, reports circulated over the summer of industry giant McDonald’s pulling its dollar drinks offering in 16 of the restaurant’s 56 markets. In the United Kingdom, the brand raised the price of its value menu cheeseburger for the first time in 14 years.
Restaurant chains are also getting more cautious with their rewards. Starbucks and Dunkin’ have made it more costly to redeem many popular rewards items, and Red Robin has put new limits on its birthday burger giveaway.
Hackbardt argued that the value menus that remain tend to be too limited, unable to meet consumers’ demand for choice.
“The most common pitfalls are lack of quality, portion size, flavor, variety and price,” he said. “The majority of the brands we see that still have value menus miss on all these metrics, especially the quality and variety.”
He added that variety is key to these menus’ ability to “drive frequency of visits,” keeping consumers from getting bored of the offerings.
As many leading brands scale back their value menus and make changes to their rewards structures, consumers are increasingly looking for just those kinds of offers.
Research from the December edition of PYMNTS’ Restaurant Digital Divide study, “The 2022 Restaurant Digital Divide: Restaurant Customers React To Rising Costs, Declining Service,” which drew from a December survey of more than 2,300 consumers who regularly ordered from restaurants, illuminates these trends.
The study found that 88% of millennials and Generation Z consumers, 87% of bridge millennials and 85% of Generation X consumers and 77% of baby boomers and seniors have made changes to their dining habits in response to inflation. These changes include choosing cheaper menu items and opting for restaurants with lower prices.
Of course, value offerings can be especially challenging for restaurants to maintain now, with rising costs making it all the more difficult to make a profit or — in the case of deals that serve as loss leaders — to offset that cost.
Still, Del Taco maintains that, as competitors’ price increases further differentiate the brand’s value menu, the margin challenges of the model are worth it. Indeed, even beyond the under $2 menu, brand is looking to underprice competitors to stand out amid this inflation, with U.S. Bureau of Labor Statistics (BLS) data revealing that restaurants have raised prices 8.5% year over year.
“A good example [is] our [chicken burrito]. The fast-casual burrito brands have really increased their prices and tend to be well beyond $10 now for a single chicken burrito with fresh guacamole,” Hackbardt said. “[Our comparably sized] burrito [is] well below $10. [That] is a great value in the face of inflation, even if it isn’t an item under $2 on the value menu.”
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