Since it dropped its Dollar Menu in 2013, McDonald's has not really been a value player in the fast-food space.
The company has tried various lower-priced options, like its $1 $2 $3 Menu, but the items in that offering generally faced the same issue that doomed the Dollar Menu. Franchise owners want people using those menus to add to a full meal. They don't want them using the low-priced menu to cobble together a meal.
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People ordering solely off McDonald's (MCD) Dollar Menu were low-margin customers. Franchise owners have pushed the chain to focus on discount deals that encourage higher overall checks, making the thinner profit margins on the value-menu items more acceptable to them.
That's why aside from drinks, the $1 $2 $3 Menu often does not contain any $1 items (although that can vary by date and market). Value, however, has been growing in importance as more customers are worried about their jobs and the economy.
Chief Financial Officer Ian Borden discussed the matter during the company's fourth-quarter earnings call.
"Providing our customers with affordable options has always been core to our brand, and it's even more important as consumers feel pressure on their spending, particularly the lower-income consumer," he said.
"We continue to listen to our customers by evolving our value offerings, maintaining strong perceptions in value for money and affordability."
Image source: Cate Gillon/Getty Images
Wendy's has set the standard for value
Wendy's has built its business around two low-cost offers, the 4 for $4 and its $5 and $6 Biggie Bags. The 4 for $4 has been a cornerstone of its menu, and while the included sandwich has changed, the price point has not.
Currently the offer includes a Junior Cheeseburger, a 4 Chicken (or Spicy Chicken) Nuggets, a small fries and a drink. Customers can opt for a small Frosty instead of the drink.
It's a generous offer, with which customers know that they can get a reasonably filling meal at the $4 price point. If they're willing to spend $5 or even $6, that opens them up to the chain's Biggie Bags, which include more choice of sandwiches, including chicken options, and some double burgers.
When it comes to value, Wendy's has set the bar and neither McDonald's nor Burger King has competed. That has almost certainly helped Wendy's win over some customers who are largely motivated by the prices of its value deals.
McDonald's goes after Wendy's on value
McDonald's does not intend to leave the $4 value bundle space to Wendy's. In fact, it has been quietly competing in that area, according to Borden's comments during the UBS Global Consumer and Retail Conference on March 13.
“Ninety percent of our restaurants in the U.S. are offering bundles at breakfast or during the rest of the day at under a $4 price point," he added, according to Nation's Restaurant News. "So, we’ve got really compelling affordability, but we haven’t been talking about it as actively yet. We’re going to in 2024. We want to make sure the consumer knows what’s available when they’re making choices,”
A $4 breakfast deal is not the same as $4 lunch and dinner deal, but the chain seems committed to value in a broad sense.
“Consumers are going to be much more focused on affordability, and that's where we’re making sure you've got great visibility," he added. "You've got compelling offers at the right price points that are going to attract consumers in as they're being more thoughtful of those choices. And that's certainly what we're going to focus on and emphasize as we work through 2024.”
Chief Executive Chris Kempczinski echoed the affordability model in his remarks during the earnings call.
"I think what you're going to see as you head into 2024 is probably more attention to what I would describe as affordability," he said. "So think about that as being absolute price point being probably more important for that consumer ... to get them into the restaurants."
Deals at $4 fit that model, where consumers on tight budgets are looking for fixed low price points.
