Fast Food Bets on Smaller Portions, Personalization to Protect Profits

How these restaurants define value is shifting.

August 09, 2022

ALEXANDRIA, Va.—Fast-food restaurants are rethinking their value strategies, reports CNBC. They’re cutting back on portion sizes, raising prices and pushing more digital deals to entice people to sign up for rewards programs and download their apps.

“We’ve seen companies tweaking their value menus across the board,” Michael Schaefer, the global lead for food and beverage at market researcher Euromonitor International, told CNBC. “We’re seeing fewer items total, limited price increases, smaller items.”

Burger King took the Whopper off its value menu and shrank its 10-piece nugget menu item to eight pieces, while Domino’s Pizza increased the price of its Mix & Match delivery deal from $5.99 to $6.99. The pizza shop also made its $7.99 carry-out offer a digital-only deal.

Experts say that the industry has been attempting to rely less on promotions that cut into profits, such as Subway’s $5 Footlong campaign and McDonald’s dollar menu—both of which were dropped over the past few years. Additionally, experts say fast-food chains are zoning in on value strategies that allow for personalization through mobile apps and rewards programs, resulting in more profits.

McDonald’s reported that digital sales in the company’s top six markets exceeded $6 billion, or about one-third of total systemwide sales.

“You have to think about value in a targeted way. As we get more digital, there are different products with different elasticities in different geographies. I get excited about the ability for us to be much more targeted in how we deliver that value,” McDonald’s CEO Kempczinski said on a recent earnings call. “What we’re looking at doing is exactly which products do you need to offer value, to what degree and through what vehicle—an offer, a menu price adjustment or promotion?”

Kempczinski also said that value is no longer a one-size-fits-all equation because of the opportunity digital provides in learning more about how customers access the brand.

“We’ll continue to have some national offers, but we’ve moved more toward a local approach which then becomes, ultimately, a personalized approach. We’re in the middle of that evolution—going from national to local to personalized,” McDonald’s CFO Kevin Ozan said on the call.

According to Francois Acerra, director of research and consumer analytics for Revenue Management Solutions, personalized offers can be a “win-win” because customers receive a discount on what they actually want, and companies are able to protect their margins.

“Brands can say ‘Oh, it’s due to the inflation,’ but I think brands have been trying to move away from those lower price points for quite a while,” Acerra told CNBC. “Brands are willing to provide value to consumers for so long as they can leverage guests’ purchase history to maximize customer lifetime value in the long run.”

Apps are also a strong marketing tool. Just be seeing a company’s logo everyday on their phones can have effect, according to Adam Blacker, director of content and communications for Apptopia, a data analytics company. Apps also allow companies to mine analytics from their customers, such as what they’re ordering and what promotions they respond to.

Fast-food companies are also localizing their promotions, giving local operators the flexibility to choose which promotion they think their customer will respond best. McDonald’s has its $1, $2, $3 menu, but regions can select which menu items to offer, and Papa John’s locations can adjust their deals based on their local market.

“A discount in San Francisco is different than a discount in Atlanta and Ohio,” said CEO Rob Lynch said during Papa John’s earnings call.

However, Schaefer of Euromonitor says because fast-food restaurants are still seen as a place of value, chains will still need to keep offering eye-catching deals to draw certain customers.

“They may look a bit different than in years past, but there will always be a place for high-visibility, low-priced items, which drive traffic and higher-margin add-ons,” Schaefer of Euromonitor told CNBC.

During the Great Recession of 2008, customers traded down from full-service restaurants to McDonald’s, and the company wants to be the go-to trade-down option again, as consumers grapple with decades-high inflation.

“We know there is challenge on the lower income [consumers], but we are getting trade down out of full-service restaurants, getting trade down at fast casual, that’s helping offset any of that impact,” Kempczinski said on the earnings call. “While there is going to be some shifting within the cohort, our value positioning, we expect to be a winner out of all of that.”

A recent Harvard Business Review study on loyalty programs found three takeaways for loyalty programs. NACS Magazine dove into loyalty programs and how they can provide convenience retailers with key consumer insights and a competitive edge.

NACS offered a free webinar that shows retailers how to improve their current loyalty program.