Fast Food chains' value meals under scrutiny as results loom
McDonald's
In a few weeks, the quarterly earnings of fast food giants like McDonald's, Burger King, and Wendy's will be discussed.
What has been interesting to investors lately is their newly rolled-out value meals. It appears to be an attempt against rising menu prices, in line with capturing the budget-oriented consumer.
"The key question is how consumers are responding to these value deals and discounts," said BTIG analyst Peter Saleh. "More importantly, how long will these promotions need to last to bring customers back?"
The chains have been touting a few of these value meals in the past few months, such as McDonald's $5 value meal and Burger King's $5 "Your Way Meal." Wendy's added a budget $3 breakfast deal to the fray.
Still, some analysts are sceptical about those deals' staying power.
"Offering value through limited-time discounts only extends to a few items, like the McDouble or McChicken," said Danilo Gargiulo, senior analyst at Bernstein. "These deals might not be as attractive as premium offerings like the Big Mac or Burger King's Whopper Junior."
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While the value meals were rolled out towards the end of the quarter, customer traffic has yet to see major bumps.
According to data from Placer.ai, there was a small uptick in foot traffic between April and June: 0.4 per cent for McDonald's, 1.6 per cent for Burger King, and 1.4 per cent for Wendy's.
Ahead, though, the earnings reports tell a potentially different story.
Analysts said that McDonald's, which reports first on Monday, could post its first profit decline in six quarters, coupled with slower same-store sales growth from the year-earlier period.
The trends are expected to play out similarly for Wendy's and Burger King's parent, Restaurant Brands International.
"The entire fast-food industry appears to be slowing," said Morgan Stanley analyst Brian Harbour. "From what we can tell, customer demand is soft despite promotional activity."
These reports will be crucial to determining whether value meals are an effective, long-term strategy for fast food chains battling inflation and keeping the loyalty of customers.
(With inputs from Reuters)
