Why McDonald’s, Burger King, and Others Are Rolling Out Value Meals

A price war is brewing in the fast-food industry, with McDonald’s (MCD) and Burger King of Restaurant Brands International (QSR) recently announcing $5 “value meal” promotions, joining companies trying to win over inflation-weary consumers.

Both deals are expected to be temporary promotions, with Burger King reportedly racing to launch its meal before McDonald’s, which will begin its promotion June 25. Wendy’s (WEN) also announced its own $3 breakfast deal earlier this week, with no set end date.

The moves come as companies across a number of industries have acknowledged inflationary pressures weighing on customers.

Lowering Prices To Win Customers

McDonald’s CFO Ian Borden said earlier this year that inflation was affecting the chain’s sales as lower-income consumers pulled back on spending at restaurants. The chain’s global operations have also been hit by boycotts and conflict in the Middle East.

Companies outside the fast-food industry are also moving to lower prices or offer discounts to appeal to stretched consumers, with Target (TGT) recently announcing plans to lower prices on some 5,000 of its frequently shopped items over the course of the summer.

In last week’s earnings call, Walmart (WMT) executives said inflation has positively affected their sales, as the world’s largest retailer’s reputation as a destination for lower prices has boosted its market share among high-income consumers as inflation has tightened budgets.

However, Not All Companies Are Cutting Prices

Some fast-casual restaurants like Chipotle (CMG) and Sweetgreen (SG) have notably resisted the trend of price cuts, as executives have said in recent earnings calls that higher-income consumers are driving their sales, suggesting they feel less pressure to cut prices.

TD Cowen analysts also reportedly noted that many fast-food chains hiked prices more rapidly than fast-casual chains last year, narrowing the price gap between the two segments, which may have benefitted fast-casual chains by raising perceptions of the value of their offerings.