Some time ago, we looked at prices at Chili’s compared with McDonald’s and declared that any idea that the former is as cheap as the latter was “complicated.”
But there is one thing we did not note at the time: We do not live in California.
That apparently matters.
According to data from Price Pulse, the pricing tool from Restaurant Business sister company Technomic, the price of a Big Mac meal compared with the budget-friendly $10.99 “3-for-Me” offer at Chili’s is more comparable in California.
We asked Technomic for the price of a Big Mac meal and the price of a Big Smasher—Chili’s deliberate Big Mac competitor—nationwide and in California.
Nationwide, the Big Smasher on the 3-for-Me offer is $10.99. That is also the price in California.
At McDonald’s, the average price of a medium Big Mac meal is $9.72.
In California, that price is $10.98. Or, based on our quick math, one cent lower than that 3-for-Me deal.
There is a significant caveat here. We’re comparing a value offer at Chili’s with the everyday price of a premium item at McDonald’s. Chili’s overall menu is still more expensive than McDonald’s overall menu, even in California.
In addition, the bulk of Chili’s business comes in the restaurant, where a server takes your order and brings you food and is paid a tip, typically about 20%. At McDonald’s you are probably going through the drive-thru. As such, the Chili’s order comes with a 20% premium. That is not nothing.
At the same time, Chili’s offer gives customers more for their money, so in effect the casual-diner’s offer is a better value.
The data is nevertheless demonstrative of the impact the $20 fast-food wage has had in the country’s largest restaurant market.
California started requiring fast-food chains to pay a minimum of $20 an hour as part of a law that went into effect last year creating a council overseeing regulations on the quick-service restaurant sector.
That effectively increased the lowest rate of pay by a third, and meant many companies had to increase other wages so more experienced workers were paid higher rates than those who just came in off the street.
Casual-dining chains such as Chili’s, on the other hand, are not required to pay those rates, though they most certainly do pay higher rates than the minimum wage in many locations.
The result, at least in California, has reduced the pricing gap that has long existed between casual-dining chains and fast-food concepts. That gap isn’t completely eliminated. But it’s certainly closer than it’s ever been.
The Big Smasher meal outside the 3-for-Me deal cost $13.37 nationally and $14.49 in California. So Chili’s in California is 5.3% more expensive, at least for that one menu item, than the national average.
But the Big Mac meal in California is 13% higher than the national average.
Frustration over fast-food prices hit a fever pitch last year, helping spur weak traffic throughout the industry. Quick-service chain restaurant sales grew just 2.4%, while fast-food burger sales grew just 1.3%, according to data from Restaurant Business sister company Technomic.
Casual-dining chains, however, have not quite received any real benefit. Their sales grew at the same overall rate as fast-food burger chains last year, just 1.3%.
Many of Chili’s primary competitors struggled with weak sales, notably TGI Fridays, which filed for bankruptcy. Applebee’s same-store sales have fallen for eight straight quarters.
Yet Chili’s used a variety of tactics last year to gain favor with consumers, including investments in operations, a simplified menu and innovative marketing. That included highlighting the 3-for-Me deal on social media when it became clear last year that customers were angry about prices.