Restaurant CEOs’ new favorite word is value as they aim to bring back customers

Restaurant CEOs’ new favorite word is value as they aim to bring back customers

A sign advertises meal deals at a McDonald’s restaurant in Burbank, California, on July 22, 2024.

Mario Tama | Getty Images

Restaurant CEOs have become obsessed with the word “value” in explaining to investors why their sales lagged this quarter while sharing plans to revive traffic in the coming months.

On McDonald’s quarterly conference call last month, executives said the word “value” nearly 80 times, underscoring the fast-food giant’s biggest priority.

And McDonald’s isn’t alone. Other leaders at restaurant companies from Taco Bell owner Yum Brands to pizza chain Papa John’s also used the word dozens of times in their latest conference calls.

“The word ‘value’ has received a lot of airtime in the past few months,” Josh Kobza, the CEO of Burger King parent company Restaurant Brands Internationalsaid on Thursday.

There’s a reason for that emphasis. Prices for food away from home have climbed 27.2% since June 2019, according to the Bureau of Labor Statistics. In response, restaurant traffic has fallen and sales are lagging as consumers spend less money dining out, no longer convinced that it’s a good deal.

Many chains are hoping to bring back customers through discounts and promotions, like the $5 meal deals found at McDonald’s, Burger King and Taco Bell.

“In this current economic cycle, consumers have become more deliberate in managing their overall ticket and are showing a preference for brands that are offering compelling value,” Papa John’s finance chief Ravi Thanawala said on the company’s call on Thursday.

Reputations for value

McDonald’s Chris Kempczinski speaks about fresh beef expansion at a McDonald’s event in Oak Brook, Illinois.

Richa Naidu | Reuters

Brian Niccol, CEO of Chipotle Mexican Grill

Adam Jeffery | CNBC

value for shareholders

A drive-through area of ​​a Burger King restaurant in Peoria, Ill.

Daniel Acker | Bloomberg | Getty Images

Companies aren’t just thinking about offering value for customers — they’re also thinking about shareholder value. Restaurant stocks have been under pressure this year as investors grow concerned about the health of the industry. Shares of McDonald’s and Restaurant Brands have both fallen 10% year to date, while Starbucks‘ stock has tumbled 21%. The S&P 500 has risen 11% during that period.

Worries about chains’ financial health aren’t confined to the top line. They’re also about profits, particularly as companies lean into discounts. While cheap deals might draw in customers, they can hurt the profitability of restaurants, weighing on earnings and hurting franchisees’ financial health.

And so-called value wars — where chains try to outdo one another with deals — only intensify those concerns as investors fear a race to the bottom.

While such concern hasn’t borne any fruit yet, it’s still early days. For now, it looks like the conversations about value and discounts are bringing some customers back.

For example, Burger King was one of the first chains to unveil a $5 value meal this summer. Its US same-store sales were roughly flat for the quarter, but executives said the deal is attracting customers. Burger King now plans to offer it into October.

When its rivals followed suit with their own $5 discount deals, the Restaurant Brands chain didn’t see any clear impact to its business.

“There are actually some positives to the focus on value across the industry,” Restaurant Brands’ Kobza told CNBC. “I think it has the ability to improve the value-for-money perception of the category with our guests as more people talk about the incredible value that’s offered by our sector. I think that really helps everybody.”

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