FoodTec Solutions

Discount Wars: How to Survive Value-Driven Menu’s

Success of the quick-service industry is built around speed, convenience and frugality – and by frugality we mean cheap eats and low prices which have become an all-important component to remain competitive.

Fast food restaurants are notorious for offering a cornucopia of cheap eats and value items. The concept of offering a permanent, separate menu at a cheaper price is nothing new, if anything it’s about 30 years old! Wendy’s has been credited as the value menu pioneer, first taking the risk in 1989 by offering a constellation of seven discounted items, including the infamous 99 cents burger that rivaled its competitors. At the time, the concept was considered radical by many but that year also saw a 25 percent increase in sales for Wendy’s. And the rest they say is history… well, actually, it might have taken a few more years before other chains followed suit, but when they did, it snowballed.

Not surprisingly, discounts do help get customers in the door but as a direct consequence, competition in this space has intensified. As restaurants continue to push value in a quest for market share, price wars have emerged as a fact of life. As long as one competitive rival offers value items, others are compelled to follow suit or risk losing business.

And it doesn’t stop there. Lately, a sort of in-between gray zone has also sprung up between quick service and fast casual when it comes to value. While fast-casual concepts largely sidestep the price conversation, focusing on their product quality, it now seems they want a piece of the low-price pie, with some operators pledging to offer fast-casual quality at a more traditional quick-service price point. And conversely, quick serves want to better compete with fast-casual and have begun offering higher quality items.

So, with a never-ending discount tug-of-war being played out, how can operators, who also face growing pressure from labor and food costs, compete in the lower price arena? Here are some things to consider:

Try Limited Time Offers & Couponing: For restaurants considering new value-priced options and seeking to create a balance between profit and perception, analysts cite two proven methods: limited-time offers also known as LTOs and couponing. Limited-time offers work particularly well at low price points as they encourage visits without the long-term negative impacts of an everyday value menu. LTOs can also include dine-in-only deals, thereby heightening the likelihood that customers will purchase higher-margin items, such as a drink, during their visit. Coupons can similarly work well. They can help increase traffic, introduce new customers to the brand, while also encouraging existing customers to try new products.

Introduce New Items: Many value-inspired offerings do not include reduced prices of a brand’s signature products. Instead they introduce new items at lower prices and/or include snack like items such as Wendy’s Chicken Go Wrap or Burger King’s Chicken Tenders, ideal for today’s on-the-go lifestyles and even seizing on the nutritional halo effect.  By doing this a brand can offer items on a value menu and not devalue where the profit is.

Remember, value doesn’t have to mean cheap: When it comes to price, while it does draw customers in, it isn’t the only characteristic that drives them. Consumers don’t necessarily think about value in terms of low prices, instead, perceived value is more important than the product’s actual price.

With that in mind, astute operators are increasingly competing with value messaging that goes beyond the dollar amount. Some brands are reshaping the definition to be more inclusive of product quality, portions, and customization – examples include Taco Bells’ mix and match food bundle, which according to its company sold a billion dollars’ worth of bundles in its first year, Wendy’s four-for-$4 deal, Burger King’s range of two-item offers available at different price points, McDonald’s, $1, $2, $3, tiered system etc. By letting the customer customize and build their order by choosing and deciding the right quantity of food for the occasion, they will get what they perceive as good value.

Use a combination approach: What are we talking about here? The barbell strategy. While there is a mindset, or even a worry that offering value items means that customers will only choose and purchase from the value menu. However, the barbell strategy focuses on a making a discounted menu work by using a combination approach of both value items and premium offerings to achieve the perfect equilibrium. By offering a diverse value menu that embraces lower price points, it will not only draw customers in but creates an opportunity to sell customers other products in addition to low-margin items. Conversely, people may also select a value item as an addition to a more premium item—in effect to balance the cost out.

While low prices will make people flock to your doors, implementing a lower price-point menu requires a meticulous strategy. In order to remain attractive and competitive, the challenge to brands and operators alike is to find the balance between consumer responsiveness, price, and profit.