McDonald’s this week officially revealed its $5 Meal Deal on Thursday. The press release was barely out before we received announcements from Wendy’s and Subway about their own respective summer value offers.
Burger King beat them all to the punch. Chains from Taco Johns to Lou Malnati’s all have their own deals. Even Starbucks, and I still can’t believe I’m writing this, is all over value right now.
It is no secret why. Check out this graphic showing average same-store sales for the past six quarters, based on data from the Restaurant Business same-store sales tracker.
Some of that slowdown in the first quarter, at least, is rooted in weather issues, which affected a wide swath of the country and therefore many restaurant chains.
Better weather and easier comparisons could make life seemingly better in the current period. Improved performance should be something of an expectation, at least for the next couple of quarters, simply because of better availability.
But in general this remains a market in which the consumer is telling restaurants they are too expensive.
Much of the focus has been on the fast-food sector, where social media users have hammered chains like McDonald’s for price increases since before the pandemic. The Chicago-based burger giant has raised prices 40% since 2019 on average. That reaction has largely prompted the value war.
But fast-food chains have outperformed everyone else on average, at least last quarter. Quick-service concepts modestly outperformed fast-casual concepts. Full-service restaurants of all types lost sales last quarter on average.
While chains like Texas Roadhouse (same-store sales up 8.4% last quarter) and Chili’s (3.5%) bested expectations, for the most part full-service restaurants have lost ground in recent quarters.
Consumers may be pushing back hard on quick-service chains, but a lower-income diner cutting back on their dining frequency is more likely to cut back on full-service chain visits. And when they dine out, they visit restaurants that are more likely to give them the type of experience they’re looking for. That’s a tough market for full-service chains to be in.
Another element of the current environment is the wide gap between winners and losers. And that gap was a massive canyon last quarter. Check out this graphic:
There was a 34.6 percentage point gap between the top-performing chain (Wingstop and its 21.6% same-store sales number) and the worst (the struggling BurgerFi, down 13%). That gap has opened considerably over the past two quarters.
Wingstop, however, is an outlier. Only one other chain, Dutch Bros, could boast double-digit same-store sales growth. And only eight chains generated same-store sales above the rate of menu price inflation. That means the bulk of the industry lost traffic. And some really lost traffic.
Indeed, underperformance was the name of the game last quarter. The average chain underperformed their average same-store sales from the past year by more than 200 basis points last quarter. Most restaurant companies saw sales slow. Starbucks, for instance, slowed by more than 700 basis points.
And that’s why they’re all doing value right now.