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Fast food officially has a perception problem

A recent survey found that most Americans think fast food is a ‘luxury,’ while McDonald’s president has penned a letter debunking pricing myths.

A recent CNN study of earnings calls and analyst notes finds that the word of the summer – on Wall Street, at least – is “bifurcation,” or the division of something into two parts. In this specific instance, bifurcation means that high-income consumers are plugging along just fine, while low-income consumers are really starting to struggle.

Indeed, 80% of American households have less cash available than they did in 2019, while credit card debt has reached a historic high. Meanwhile, a JP Morgan survey found that over 70% of low-income consumers are having a hard time making ends meet. Notably, middle-income households are also feeling pinched; 67% believe their income is falling behind the current cost of living.

Is it any wonder, then, that most (78%!) Americans now consider fast food to be a “luxury?” According to a new LendingTree survey, this shift in thinking has caused 62% of American consumers to eat QSR food less frequently. Don’t just take LendingTree’s word for it; traffic declines have been telling this story for at least two quarters now, while restaurant executives from McDonald’s to Jack in the Box to Dine Brands and Bloomin’ have pointed out a more discerning low-income consumer. This is of particular concern to the QSR segment, which overindexes on households below $50,000.

On the heels of Q1 reports, several brands have shown urgency in trying to correct this “luxury” perception. McDonald’s and Burger King are jockeying over $5 meal deals. Wendy’s has a $3 breakfast combo. Jack in the Box has released a Munchies Menu, with offerings under $4. Even smaller chains are doubling down on their value messaging. Peter Piper Pizza just launched what it is calling “inflation-busting summer fun family deals,” for instance.

Such value messaging is proliferating everywhere right now – on TV, on social media, in brands’ apps, in consumers’ mailboxes. I’ve personally received mailers from four restaurant brands in the past two weeks alone and I’m a loyalty member of just one of those brands, so there seems to be some desperation here. I started covering this industry on the heels of the Great Recession in 2009, and this all seems eerily familiar. That said, if aggressive discounting is what it takes to make fast food more accessible to more consumers, then so be it. Surely, we’re smarter this time around, right? We won’t completely erode our margins this time around, right?

Anyway, this accelerating activity does beg the question, what’s the end game here? We’ve been talking about the economy’s risk for a recession since at least late 2022 and one has yet to manifest, but signals are starting to flash a little more rapidly when considering that increasing bifurcation. Consumer spending, after all, is our economy’s biggest driver and when that slows, things start to become a bit more precarious. In the meantime, our industry has a perception problem that urgently needs fixing. 

This afternoon, Joe Erlinger, president of McDonald’s USA, released a letter addressed to the company’s fans. In it, he reiterated the company’s “laser-focus on value and affordability.”

“It’s what our brand was built on, and we are committed to living up to that legacy – especially at a time when our customers need it most,” he wrote.

The letter, however, goes much deeper than repeating McDonald’s value objectives. Erlinger addresses “viral social posts and poorly sourced reports that McDonald’s has raised prices significantly beyond inflationary rates.” He calls this information inaccurate, adding that the company has a responsibility to debunk it. Erlinger then shares several reasons as to why the chain’s prices have gone up – the pandemic, supply chain costs, wages, etc. This confluence of pressures has driven the average cost of a Big Mac up 21% since 2019, not 100% as has been widely shared, he adds. Such a public letter is not unprecedented, but it’s certainly not common, which perhaps speaks volumes about the current environment we’re in, and the current perceptions our customers have.

Whether Erlinger’s letter can spin some perceptions about fast food in a more positive direction is yet to be seen. In the meantime, what we can see clearly right now is that inflation in the overall QSR segment actually accelerated last month, despite a drop in prices at grocery stores and supermarkets. QSR prices are 4.8% higher year-over-year, while full-service restaurant prices are up 3.4%, matching the overall Consumer Price Index. And yes, QSRs have been disproportionately impacted by labor inflation, especially in California, which has kept prices elevated. Importantly, however, most consumers who need a quick burger aren’t thinking about a specific franchisee’s input costs, they’re thinking about why their dollar is shrinking and where else they can go to feel less burdened. That’s going to take some work, and it’s going to require more than an open letter, a temporary meal deal and a mailer.

Contact Alicia Kelso at [email protected]


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