NPD: QSRs should pump up value meals as gas prices rise

NPD: QSRs should pump up value meals as gas prices rise

With gas prices inching upwards as the warmer months approach, savvy operators should be rolling out value meals or improving their current offerings, officials at the NPD Group say.

New data collected by the Port Washington, N.Y.-based global market research firm reveals that quick-service operators with value/dollar menus are well positioned to profit despite possible penny pinching by consumers. The growing number of casual dinnerhouses paring down their entrée portions might be doing themselves a favor.

“Without value menus, QSR would be really weak,” NPD analyst Bonnie Riggs said. “[Growth would] probably be negative.”

In the last year, value/dollar menus have been instrumental in driving quick-service traffic growth. For three quarters in a row, value/dollar menu traffic has increased by double digits, while overall quick-service growth has fallen. The growth in value/dollar menu traffic first began to escalate to double digits last summer, NPD reported, when gas prices hit an all-time high. At the same time, higher-priced casual dinnerhouses lost traffic.

According to the data, value/dollar menu traffic was down 4 percent in the quarter ended February 2006, versus the same quarter a year ago, but began single-digit increases in the following quarter. As the weather warmed and gas prices jumped skyward, value/dollar menu traffic increased from 5 percent in the quarter ended May 2006 to 17 percent in the quarter ended August 2006. For the quarter ended in February 2007, traffic continued to increase to 18 percent.

The consumers who take advantage of value/dollar menus tend to be the same folks that are likely to feel the economic squeeze of high gas prices most: young people and those in mid- to low-income households.

In the quarter ended in February 2007, kids under 18 generated 25 percent of all value/dollar menu traffic. Adults aged 25 to 34 generated 18 percent of traffic, and young adults aged 18 to 24 generated 15 percent of traffic during the same period.

Heavy value/dollar menu users are also less affluent than other quick-service consumers. Those earning less than $25,000 annually are the heaviest users by far, making up 26 percent of all value/dollar menu traffic in the quarter ended in February. During the same period, households earning $25,000 to $44,999 accounted for 23 percent of all value/dollar menu traffic, and those earning $45,000 to $59,999 accounted for 15 percent.

Weekday lunch is the most popular time to order from a value/dollar menu, according to the data. In the quarter ended in February, 44 percent of value/ dollar menu traffic occurred during lunch. Twenty-six percent of value/dollar menu traffic was ordered during supper, 17 percent during p.m. snack and 13 percent at morning meal. Nearly 60 percent of value/dollar menu traffic occurs weekdays, compared with 41 percent on weekends.

While all dayparts experienced an increase in value/dollar menu traffic in the past year, breakfast has seen the biggest increase, up 24 percent over the previous year. The increase is likely due to the introduction of breakfast value/dollar menus by such chains as McDonald’s [3] and Burger King [4].

The data also show that weekend value/dollar menu traffic was up 21 percent in the past year.

“When they went out on the weekends, it was value that drove that increase,” Riggs said. “[Consumers] are using it as a special treat.”

Value/dollar menu users not only like their food cheap, they like it fast. In the quarter ended in February, 59 percent of all value/dollar menu traffic was ordered from a drive-thru.

While the quick-service hamburger category accounts for 81 percent of value/dollar menu traffic, the most popular value/dollar menu item isn’t the hamburger, but the breaded chicken sandwich, NPD reported.

In the quarter ended in February, 64 percent of all value/dollar menu servings came from breaded chicken sandwiches and 41 percent came from regular cheeseburgers. Other popular items included French fries, which accounted for 15 percent of all servings; large cheeseburgers, which accounted for 14 percent; and ice cream, which accounted for 10 percent.

Such demand has prompted many of the big burger chains to add breaded chicken sandwiches to their value menus. Last year Wendy’s added a breaded chicken sandwich to its Super Value Menu for the first time and rolled out a second, the Buffalo Crispy Chicken Sandwich, in early May. Burger King plans to add a spicy chicken sandwich to its value menu in the fall, a spokesman said.

The three burger behemoths are among those reaping the benefits of the growing number of cost-conscious consumers turning to value/dollar menus.

Oakbrook, Ill.-based McDonald’s has had 48 months of consecutive comparable-store sales increases, which it attributes to a variety of value propositions, including its Dollar Menu.

“The Dollar Menu has played a significant role in that [success],” said McDonald’s spokeswoman Danya Proud.

The No. 1 burger chain’s Dollar Menu features a variety of items, including a double cheeseburger and the McChicken sandwich, all for just $1. Last year the burger giant also launched a breakfast version of the Dollar Menu in select markets.

McDonald’s also offers a number of menu items for just slightly more than $1, including its new Snack Wrap. Priced at about $1.29, Proud said value has played a critical role in the success of that product.

Dublin, Ohio-based Wendy’s International [5] reported same-store sales increases of 3.8 percent for U.S. company-operated restaurants and 3.7 percent for U.S. franchise restaurants in the first quarter of 2007 and cited the importance of a value menu to its success. Among the chain’s value-focused offerings is the Super Value Menu, which features approximately 10 items priced from 99 cents to $1.09.

In January, the chain further expanded its value offerings by rolling out the Deluxe Value Meal, a combo featuring a double cheeseburger or a crispy chicken sandwich, small French fries and a 20-ounce soft drink for $2.99.

After several failed attempts with value menus, Miami-based Burger King launched the BK Value Menu in March 2006.

“It’s not our first time with a value menu, but it’s the first time we’ve found one that meets demands and satisfies consumers,” said Michael Kappitt, Burger King’s vice president of consumer insights and performance analysis.

The Whopper Jr., a downsized version of the chain’s flagship burger, is the centerpiece of the 10-item menu. Six of the items are national and priced at $1, while four others vary by market and can be priced up to $1.29.

Although he declined to reveal specifics, Kappitt said that the 15-month-old value menu has definitely had a positive impact on the chain’s traffic and sales.

Given the current economic environment, NPD’s Riggs said that a value strategy is a must. While she thinks operators without one should adopt one fast, she doesn’t believe that those with existing value offerings can rest on their laurels.

Among the opportunities for improvement, she said, is consumer satisfaction. While more consumers are ordering from value menus, they aren’t necessarily more satisfied with their experience. According to the data, value menu customers tend to rate quick-service restaurants lower than the total of quick-service customers on key food attributes.

Attributes such as “food prepared the way I liked it,” “taste and flavor of the food,” “size of portions,” “pleasant friendly service” and “fast, efficient service” were rated “excellent” less often by value/dollar menu customers than total quick-service customers.

Beverages are another area of opportunity, Riggs said. According to NPD, sales of carbonated soft drinks have not kept pace with overall value/dollar menu traffic or those food items growing at double-digit rates. In the quarter ended in February, carbonated soft drinks accounted for just 6 percent of all servings ordered from value/dollar menus.

“A small drink for a dollar is not a good value proposition,” Riggs said. “Not when you can go into a c-store and get a large drink for a similar price.”