$1 extra fries? McDonald’s value menu marks how chains are adapting or closing.
McDonald’s rolled out its McValue menu Tuesday, its biggest attempt in years to win back customers put off by high prices. It’s the latest sign of how American restaurants, large and small, are trying to cope with the inflationary shock and a changing consumer base that have hit the industry hard.
Several high-profile eateries declared bankruptcy last year, including national chains Red Lobster and TGI Fridays. Analysts expect more bankruptcies this year.
Why We Wrote This
In the United States, restaurants are trying smaller menus, value pricing, and leaner staff to trim costs as they cope with higher prices and a new generation of diners with different tastes and spending habits than their parents.
But the volatile industry isn’t shrinking; it’s transitioning, experts say. Many restaurants are trying new staffing and menu strategies to cope with inflation pressure as well as changing dining and shopping trends.
Compared with their parents, many millennial and Generation Z diners are more frugal and are consuming less alcohol.
“Restaurants realize that they have to expand outside of the old days of someone knocking on the door and saying, ‘Hello, I have a reservation,’” says Stephen Zagor, a restaurant consultant and professor at Columbia Business School. They have to make food for pickup, open neighborhood pop-up locations, and cater events. “The sales are there,” he adds, “but the sales are coming differently.”
McDonald’s rolled out its McValue menu Tuesday, the fast-food chain’s biggest attempt in years to win back customers put off by high menu prices that have soared 40% since the pandemic.
It’s the latest sign of how American restaurants, large and small, are trying to cope with the inflationary shock and a changing consumer base that have hit the industry hard. Last year, several high-profile eateries declared bankruptcy, including national chains Red Lobster and TGI Fridays.
Through October, that was the fastest rate of failures since the 2020 pandemic year, Bloomberg News reported. Analysts expect more bankruptcies this year.
Why We Wrote This
In the United States, restaurants are trying smaller menus, value pricing, and leaner staff to trim costs as they cope with higher prices and a new generation of diners with different tastes and spending habits than their parents.
Despite the news of bankruptcies and other struggles, this volatile industry isn’t shrinking; it’s transitioning.
Restaurants are experimenting with smaller menus and leaner staff to trim costs as they cope with higher costs and a new generation of diners with different tastes and spending habits than their parents, including less alcohol consumption. Others are paring menu prices with value offerings. McDonald’s, for example, now offers customers buying a sandwich, fries, or a breakfast item to buy a second one for $1 and is allowing franchisees to come up with their own value deals.
“It’s definitely a winners and losers market,” says Andrew Sharpee, partner and managing director at AlixPartners, an international consulting firm.
What separates strugglers from successes?
Among the successes are up-and-comers like Cava, a fast-casual Mediterranean chain based in Washington, D.C., and more established chains like Chipotle Mexican Grill and Texas Roadhouse, a steakhouse chain.
“Texas Roadhouse is a lesson in how to make it work,” says Stephen Zagor, a restaurant consultant and professor at Columbia Business School. “They’re listening to the customer, and the customer is saying, ‘Give us a good time. Give us really good value. Give us some fun, but give us a little bit of different.’” (Besides its hand-cut steaks, the chain is famous for its freewheeling atmosphere, free peanuts, and rolls with cinnamon butter.)
The tumult has triggered plenty of experimentation.
At the high end, some chefs are opening new restaurants within restaurants – and personally serving several-course meals to groups as small as four at the back of the kitchen and under another name.
At the low end, eateries are paring costs every way they can, incorporating automation while cutting hours of service and menu items, and maintaining bare-bones staff. Denny’s, once known for its 24/7 service, has reduced the hours of many of its restaurants. This past fall, a Wendy’s outlet in Rochester, New York, began closing its dining room after the breakfast rush, serving only drive-thru customers for lunch while would-be sit-down diners rattled locked doors.
Even Starbucks, the world’s most valuable restaurant brand, is struggling. Traffic plunged 10% year over year, the coffee chain reported in October. At the same time, employee dissatisfaction caused thousands to stage a pre-Christmas strike that, at its peak, shut down 300 Starbucks locations, according to the workers union.
How have consumers responded to higher prices?
The fallout from the pandemic has forced restaurants to focus on value. As they began to reopen, restaurants had to cope with a shortage of cooks and waiters, causing them to raise pay and menu prices. A surge of inflation in everything from food to rent pushed up menu prices even more.
As the pandemic eased, consumers didn’t care at first. Newly liberated from their homes and flush with stimulus cash, they flooded back to restaurants. But as prices kept rising and stimulus money dwindled, they balked. When a picture of a $17.59 Big Mac meal in Connecticut went viral on the social platform X in 2023, it sparked a social media debate about high fast-food prices.
Keeping diners coming through the doors and placing online orders means restaurants are having to shift to more creative, compelling, and streamlined food service.
Eventually, the economic shock will prove temporary as restaurants figure out how to lower costs without compromising value, analysts say. Already this past November, more restaurants reported increased customer traffic than decreased traffic, according to the National Restaurant Association. That’s the first time that’s happened in 20 months. And 3 in 5 restaurants reported a net increase in same-store sales year over year, the highest proportion in 16 months.
Turnarounds can be tricky
But the turnaround is just beginning. Adjusted for inflation, industry sales were still down nearly 2% from November 2023.
Coping with the change in consumers may prove more difficult. In the past, high restaurant prices would have sent people downmarket – replacing a night out at a traditional restaurant with a fast-food meal, says Mr. Sharpee at AlixPartners. Now, “They’re just not dining out as frequently.”
Consumer shifts are partly about generational change. “What we’re seeing is a significant demographic shift in the marketplace, and that’s a permanent thing,” says Alex Susskind, senior director of programs at Cornell’s Nolan School of Hotel Administration. Compared with their parents, millennials, and especially members of Generation Z “are consuming less alcohol, at least as a whole. And that’s the foundation of a lot of these casual dining restaurant chains,” he adds. Also, “They’re more frugal.”
“Restaurants realize that they have to expand outside of the old days of someone knocking on the door and saying, ‘Hello, I have a reservation,’” says Mr. Zagor, the Columbia professor. They have to make food for pickup, open neighborhood pop-up locations, and cater events. “The sales are there,” he adds, “but the sales are coming differently.”
