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McDonald’s & other fast-food giants push pricy meals instead of dollar menus

McDonald’s & other fast-food giants push pricy meals instead of dollar menus
As the coronavirus pandemic gives way to a rapid economic recovery, US fast-food chains are reportedly replacing discounts with pricy combination meals.

In an attempt to increase sales and profits, and to offset rising food costs at the same time, fast-food chains like McDonald’s, KFC, and Wendy’s have started to move away from cheap items on their menus, replacing them with new, pricier meals, Reuters reports.

The strategy, which reportedly lifted year-on-year sales at limited-service restaurants by 11.5% last month, is aimed at paring back $5-and-under ‘value’ items in favor of more expensive $10-to-$30 combination meals.

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Profit margins are also up at several major chains, according to data from Black Box Intelligence.

“Value menu items are not really profit drivers. They’re designed to drive traffic,” BTIG analyst Peter Saleh told the agency, adding that the Covid-19 pandemic also forced fast-food chains to stop developing new items.

KFC reportedly stopped offering ‘$5 Fill Ups’ – a pot pie or chicken dish, with a drink, cookie, and sometimes a biscuit – aimed at individuals in 2020. Instead, the chain promotes family meal deals that cost around $30.

Domino’s Pizza has suspended its half-price pizza promotion for online orders, saying it doesn’t need its ‘Boost Week’ discount to drive store traffic.

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Wendy’s, one of the oldest US chains, has also replaced its value menu, which was introduced in 1989 and included 99-cent items. Instead, it now offers the Spicy Pretzel Bacon Pub which costs $7.

The drastic measures are reportedly imposed by the market, as high commodity costs are forcing franchisees to find ways to maximize profits, according to Credit Suisse analyst Lauren Silberman, who said that many chains increased their margins during the pandemic.

However, this strategy may alienate lower-income customers, including hourly workers, at a time when restaurants are reopening and the government has stopped granting subsidies.

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According to data revealed by NPD Group, about 39% of fast-food visits in May were made by customers with household incomes of $100,000 or more. Those making less than $25,000 comprised about 12% of visits, and people with incomes between $25,000 and $100,000 made up 49% of visits.

Restaurants that remove too many low-price deals may lose core customers that come specifically for those items, according to Mark Kuperman, the chief operating officer at Revenue Management Solutions, a Florida-based pricing adviser to restaurants, as quoted by the agency.

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