For fast food companies, offering diners discounts on meals may no longer suffice.
That’s according to a report Tuesday (Aug. 11) by Reuters, which said that recent quarterly earnings from these restaurant chains showed that the brands that performed the strongest were the ones that combined markdowns with menu innovations, improved quality and a better experience for customers.
For example, Taco Bell was able to attract value-seeking diners without instituting widespread discounts, the report said. The chain’s $5, $7 and $9 meal boxes resonated with diners as it rolled out menu items designed to boost spending beyond entry-level bargains.
Taco Bell posted a 7% increase in same-store sales for the quarter, while global comparable sales for McDonald’s inched up 1.3%.
As covered here last week, the fast food giant pulled back on popular digital deals to fund its new “10 items for under $3” menu. It’s a move that did not go over well with customers.
“We estimate that these value execution factors accounted for about two-thirds of the customer traffic underperformance relative to our expectations for the quarter,” said Ian Borden, McDonald’s chief financial officer.
The Reuters report added that other chains saw that promotions had little effect on the pressure facing lower-income diners. Wendy’s—which sells a Biggie Bag value meal that starts at $5—saw its sales in the U.S. fall 7%. Wingstop reported a similar decline in spite of promotions that include $1 chicken wings.
“While increased noise created by competing promotions may have made it harder for consumers to make that determination, they appear to have also become more sophisticated in how they evaluate the various tradeoffs and cut through the noise,” Matt Curtis, analyst at D.A. Davidson, told Reuters.
Burger King, meanwhile, reported strong sales growth, which management credited to promotions as well as efforts to improve operations and food quality.
Burger King is “doing discounts but not all the time, and when they do, they make it creative,” said independent restaurant consultant John Gordon. “They’re not doing this insane, everyday, deep discounting.”
Research by PYMNTS Intelligence shows that cash-strapped consumers are cutting back on things like dining, with 53% of people who live paycheck to paycheck saying they were spending less over the past year, compared with 23% who spent more.
