Fast food used to be a cheap meal option. Why has that changed?
Fast-food restaurants, once the first stop for Americans looking to get at least one meal in before a long work day, are fighting to win back customers.
Breakfast sales across the fast-food sector have seen declines, the leaders of McDonald's and Wendy's said during early August earnings calls. Families are reevaluating whether the quick trip to the drive-through is worth the price, too, experts told USA TODAY.
In response, some chains are adjusting prices. But, with Americans once again feeling the effects of inflation, it's unclear if the moves will be enough in the near term to bring back customers.
What is happening with fast-food restaurants and prices?
Some value equations no longer balance due to inflation, said Neil Saunders, a retail analyst at the research and analytics firm GlobalData.
"McDonald’s, for example, is supposed to be an inexpensive treat or a cheap fast-food fix. It is now a relatively expensive purchase, especially for a family," Saunders told USA TODAY. "Many don’t think it’s worth the money, so they cut back on dining there."
Restaurants are responding by offering deals. Pizza Hut recently ended a $2 Tuesday personal pan pizza deal, which became so popular during it's original July promotion it was extended until Aug. 26.
McDonald's on Sept. 2 announced a series of pricing changes, including adding limited-time Extra Value Meals. Those offerings include a $5 Sausage McMuffin meal deal, as well as more Extra Value Meal options. The price decreases were previously reported by the Wall Street Journal. The price cuts follow weeks of discussions between McDonald's corporate officers and restaurant franchise operators, including the company offering financial support if the franchisees would agree to drop prices, the Journal reported.
Nationwide, 95% of McDonald's are owned by franchise owners, who ultimately make the pricing decisions for their locations after McDonald's offers suggestions, but franchisees can vote on certain price points or national campaigns, said Peter Saleh, managing director for research for BTIG.
Why have prices gone up for fast-food restaurants?
Costs for restaurants, especially since the COVID-19 pandemic, have put stresses on the operators, said Saleh, who examines restaurants and food distribution. Plus, fast-food franchisees have dealt with increases in royalty rates and rents on new units, he said.
Inflation and increased labor costs, especially when there was a push to increase minimum wage to $15 and above in many states, has meant higher costs, he said. Those get passed on to consumers, he said.
"From 2019 to 2023, McDonald's had to raise prices by 40% to offset inflation," Saleh told USA TODAY. "Over a five-year period, they typically would have taken 2% to 2.5% or maybe 10% to 12% (due to COVID-19). They needed to take 40%. Chipotle took 35%."
If leaders in the industry had to raise their prices that much, Saleh said, other competitors did the same.
However, Saleh said in the casual dining space, where customers have more of a sit-down meal, many restaurants only increased prices 20% to 25%.
"So what happened?" Saleh asked. "The value for your money at casual dining improved relative to the quick-service space."
Quick service, or fast-food operators, are more dependent on hourly labor than casual dining, where there are more tipped employees making a smaller base rate, he said.
A May 2024 open letter from Joe Erlinger, president of McDonald's USA, said the costs of salaries, food and paper had increased approximately 40% in the last five years and the average price of McDonald's menu items was also up 40% during that same time.
Will reducing the price of combo meals help drive up sales?
"Cutting prices helps to solve the problem of McDonald’s being seen as too expensive," said Saunders. "The question is whether the price cuts are enough. Prices are still very elevated over where they once were and it is spooking the consumer."
Before the pandemic, McDonald's sales off their value meal menu was somewhere between 10% and 12%, said Saleh. Today, the $5 McDonald's value meal, their buy-one-get-one offerings and all the discounts you can get through the app are more than 30% of their sales, said Saleh.
"I think they would want it much lower than that," said Saleh.
Why are breakfast foods at McDonald's and Wendy's not doing well?
Saunders and Saleh echoed the same sentiments the leaders of McDonald's and Wendy's shared about slumping breakfast sales.
"Breakfast is a relatively easy sacrifice as people can fix themselves something at home and save some money," said Saunders.
Coming out of the pandemic, there are also fewer people traveling to work every day, said Saleh.
McDonald's CEO Chris Kemczynski acknowledged the hit to breakfast sales during an Aug. 6 earnings call after reporting overall sales had improved after a sluggish start to the year.
"You're seeing people either skip occasions, so they're skipping a day part like breakfast, or they're trading down either within our menu or they're trading down to eating at home," he said during the earnings call (a "day part" is an industry term for a meal during the day).
Ken Cook, Wendy's interim CEO and CFO also said during an earnings call on Aug. 8 that "when consumer uncertainty increases and consumers choose to eat another meal at home, breakfast is often the first place that they do that with, so yes, breakfast continues to perform worse than the rest of the day."
Are McDonald's changes meant to target a specific demographic?
"Re-engaging the low-income consumer is critical as they typically visit our restaurants more frequently than middle and high income consumers," Kemczynski said during the earnings call.
Saleh said McDonald's is "definitely targeting the lower-income consumer."
"There is a lot of anxiety and unease with that low-income consumer. I think we could all speculate the reasons for that: probably tariffs and the impact that that might have and questions around employment," he said.
Visits by lower-income consumers to quick-service restaurants were down double digits in the second quarter, Ian Borden, McDonald's chief financial officer said during the earnings call. Middle-income consumer traffic was "marginally positive" compared to the first quarter and the higher-income consumer continues to grow visits, he said.
But Saunders said "the price cuts are not really aimed at any one demographic as the feelings of prices being too high is widespread. However, family diners may benefit most as they are bringing multiple people so their checks are much higher."
What can fast-food operators do to regain consumers?
Cutting prices and offering value meals and deals are key ways of making fast food more appealing to people's budgets, said Saunders. However, beyond that, menu innovation with exciting new options is another way to drive some traffic, he said.
The restaurants that offer the best deals "call it everyday value and are known for that," said Saleh. He pointed to Domino's mix and match offers where you can get two medium, two topping pizzas for $6.99 each or $7.99 large pizza specials.
"For like 20 bucks, if you really wanted to at Domino's, you can feed a family of four. You can't really do that in other segments," said Saleh. "You can't do that at McDonald's or casual dining. So the ones that have that deep value I think do extraordinarily well and seem to be winning."
(This story was updated to add new information)
Contributing: Mike Snider, USA TODAY. Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at blinfisher@USATODAY.com or follow her on X, Facebook or Instagram @blinfisher and @blinfisher.bsky.social on Bluesky. Sign up for our free The Daily Money newsletter, which will include consumer news on Fridays, here.