The fast food “meal deal” is a permanent part of the world, required by consumers now, and delivered by large chains.
The deals raise a question, though. How?
How is it possible to make positive revenue when slinging $1 burgers?
In an attempt to take the lead in the dreaded "Burger Wars" of the 1980s, Wendy's became the pioneer of the value menu when they launched a nine option, 99-cent menu in 1989. However, it wasn't until 1998 that Burger King launched their “Value Meal” menu, and then, in 2003, McDonald's hopped on the bandwagon with its “Dollar Menu”.
Three years ago, as fast food chains looked to increase foot traffic, the $4 meal-deal along with $1 menu items become commonplace in most quick-serve restaurants. These low-margin deals began again with Wendy's when they launched $4 value meals in October 2015, which prompted Jack in the Box, Burger King, and Carl's Jr. to do the same.
Taco Bell, Del Taco, and McDonald's followed suit and lowered their meal prices as well, while also pushing $1 menu items. Now, McDonald's offers a $1, $2, and $3 tier menu in which consumers can mix and match items to achieve the perfect individual meal at a budget price.
Unfortunately, these deals have not been huge moneymakers for restaurants, and the deals now hover around $5 for a meal in most establishments. QSRs like the $5 space and so do customers. Psychologically, a $5 meal is a good deal to consumers, especially millennials, who want to feel like smart shoppers who are getting a "whole meal" with a single bill.
The hope for restaurants is that the deals brings in groups, which help margins, or that a salad or dessert will be added to the order. In addition, these restaurants incorporate the value meal strategy to attract and retain price-sensitive customers, while increasing prices on other menu items for higher-income patrons loyal to the brand in order to support the low margins on the value side. Scale is also important for these large chains, so value menus are, unfortunately, not a luxury for independent counter-service operations and small chains.
The low-cost menu items require a perfect strategy, so that the message is heard. Marketing must be consistent and loud, and menu variety is important, it should be revamped frequently to create new interest, with a limited promotion item here and there.
It is a fine line to walk, though. The strategy doesn’t always work and restaurants need to keep that in mind as they plan. In 2009, The National Franchisee Association, which represents Burger King franchise owners, sued the BK corporation, claiming it cost $1.10 to make a $1 double cheeseburger. The suit was dropped after Burger King agreed to give franchise owners more input on the price of value items and the length of promotions.
Overall, it will be hard to maintain winning margins through value menu options. In reality price is not the issue for the new generations. They want green, healthy, unique options, and will pay for it. So, less attention on price and more attention on what is served will be the key to QSR survival.