As inflation persists and consumers tighten their budgets, brands face a critical choice: should they increase menu prices to match rising labor and food costs, or maintain current prices to attract more customers?
According to the National Restaurant Association and The Consumer Price Index for Food Away from Home, menu prices across the country rose by 4.1 percent from June 2023 to June 2024. This increase is actually lower than the 5.3 percent rise seen in 2023, indicating that while prices are still climbing, the rate of increase has slowed.
According to the National Restaurant Association and The Consumer Price Index for Food Away from Home, menu prices across the country rose by 4.1 percent from June 2023 to June 2024. This increase is actually lower than the 5.3 percent rise seen in 2023, indicating that while prices are still climbing, the rate of increase has slowed.
In California, Datassential reported that 34.4 percent of menu items at limited-service restaurants experienced price hikes in April, which is approximately four times the national average. This surge followed the state’s decision to raise the minimum wage to $20 an hour for fast-food workers at chains with 60 or more locations. Other states with notable increases in menu item prices include Washington (7.09 percent), Kentucky (6.84 percent), and Minnesota (6.35 percent).
In California, Datassential reported that 34.4 percent of menu items at limited-service restaurants experienced price hikes in April, which is approximately four times the national average. This surge followed the state’s decision to raise the minimum wage to $20 an hour for fast-food workers at chains with 60 or more locations. Other states with notable increases in menu item prices include Washington (7.09 percent), Kentucky (6.84 percent), and Minnesota (6.35 percent).
Interestingly, lower-priced items often see larger percentage increases compared to higher-cost foods. For example, a small order of fries priced at $1 would only increase to $1.10 with a 10 percent hike, which most customers would likely overlook. Conversely, an $80 steak would draw attention if it rose by $8 due to the same percentage increase. Overall, menu items priced under $1 rose by 16.7 percent, while those in the $1-$2 range increased by 11.8 percent; items priced over $30 saw a modest rise of just 1.2 percent.
Emphasizing Value
McDonald’s, once viewed as an affordable fast-food option, has faced criticism from loyal customers for its price increases. The cost of its iconic Big Mac meal has jumped from $7.29 in 2019 to $9.29 in 2024—a significant 27 percent rise. In response to customer concerns over rising prices, the Chicago-based chain is among several quick-service restaurants that have introduced value meals recently to attract budget-conscious diners.
“When fast-food inflation started to exceed the inflation you were seeing in the rest of the economy, people did not like that,” Bank of America Director of Global Equality Sara Senatore told Franchise Times’ sibling publication Food On Demand. “McDonald’s was increasing prices even as you were starting to see prices at other restaurants roll off and prices at grocery stores roll off. When menu-price inflation started to gap out from broader inflation, consumers suddenly weren’t seeing the same kind of price increases everywhere.”
Second quarter sales were down 0.1 percent globally and by 0.7 percent in the United States, McDonald’s CEO Chris Kempczinski said during the company’s second quarter earnings call. That’s in part due to increased costs of food and the war in the Middle East, Kempczinski noted, but also because of factors within the company’s control. “Most notably, our value execution,” he said.
“Consumers still recognize us as the value leader versus key competitors, but it’s clear that our value leadership gap has recently shrunk,” Kempczinski said. “We wrote the playbook on value and we are working with our franchisees to make the necessary adjustments.”
McDonald’s has introduced several value-oriented offerings globally to cater to customers adjusting their budgets amid rising prices.
Starting in June, the fast-food chain launched a limited-time $5 deal that included either a McChicken or McDouble, along with fries, chicken nuggets, and a drink. The promotion was so well-received that McDonald’s decided to extend it beyond the original month.
Additionally, the company rolled out the “McSmart” menu in Germany, featuring two sandwiches, fries, and a drink for under €6. This menu has seen remarkable sales success during its first quarter, as noted by CEO Chris Kempczinski.
“It’s this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently,” he said.
McDonald’s has not provided additional comments regarding its value offerings, but it is not alone in this trend. Other restaurant brands such as Burger King, Taco Bell, Jack in the Box, and Sonic have also introduced new value meals recently.
In July, Del Taco launched a menu featuring 15 items priced at under $2, called “Del’s Real Deal$.” This menu includes tacos, burritos, nachos, and snacks, highlighting the brand’s commitment to offering quality food at accessible prices. The introduction of this menu coincides with KFC’s decision to extend its $4.99 two-piece chicken meal through the end of the year, specifically in response to a decrease in consumer spending.
“It’s been 30 years since food ate up this much of people’s incomes, and 56 percent of consumers are budgeting their finances more now due to inflation,” said KFC as it cited U.S. Agriculture Department data. “People are fed up with spending more to get less, coupled with ‘value’ menu items that aren’t actually good quality.”
“I’m not a fan of the direction they’re taking.”
Brands have previously experimented with value menus, but Cowen Managing Director Andrew Charles pointed out that these initiatives often fail. He recalled a similar “value war” in 2018 that did not succeed, resulting in negative traffic for many brands.
“They think value is a successful tool to get people in,” he said. “Then the goal they have is that once you get to the restaurant or get to the drive-thru, they actually trade you up, so they hopefully will get you hooked because of this X-dollar promotion.”
Referring to the McDonald’s deal, Charles doesn’t expect the brand’s third-quarter sales to improve. “I don’t like the path they’re on, where they’re going to push value even harder now,” he said. Cowen downgraded McDonald’s stock from “buy” to “hold” in late July. “I think it’s very clear this isn’t working.”
If customers are specifically visiting for the $5 deal, a car with two people is spending $10 at the drive-thru, which isn’t significantly impacting overall sales, he noted. Ultimately, promotions like this tend to keep sales flat.
While franchisors aim to demonstrate to investors and franchisees that global sales are rising, if overall sales are actually declining, “the real victims are the franchisees, as they are selling these items at lower margins, while the franchisor benefits from the royalties,” Charles explained.
‘Hungry for MORE’
Last year, Domino’s revised its loyalty program to give customers points for orders over $5, down from a previous minimum of $10. This change resulted in an increase of one million loyalty members, according to Joseph Jordan, president of U.S. and global services, during a December 7 investor call.
In December, Domino’s launched its “Hungry for MORE” campaign, a five-year initiative aimed at boosting systemwide sales by over 7 percent, opening an additional 1,100 stores globally, and increasing operating income growth by more than 8 percent.
The pizza chain operates more than 20,000 locations worldwide, with system sales reaching $18.2 billion in 2023. In the first quarter alone, systemwide sales amounted to $4.3 billion, reflecting a $2 million increase compared to 2023.
The MORE acronym stands for “most delicious food, operational excellence, renowned value and enhanced by best-in-class franchisees.”
“Q1, which is our first full quarter with this strategy, not only did we have a really positive quarter, but we grew order counts,” CEO Russell Weiner said during Domino’s first quarter earnings call. The number of orders increased across Domino’s revenue channels and among customers with different socioeconomic backgrounds, he said.
Domino’s promotes a $6.99 deal for customers who order at least two items from the discount menu, which includes medium one-topping pizzas and cheese bread. The price of this promotion was raised from $5.99 in early 2022, but additional options were added.
“The best way to raise price is to not raise price, and to give people something that they want to pay for,” Weiner said May 30 at Bernstein’s Strategic Decisions Conference. “Then they chose to pay more, versus you telling them to pay more.”
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