Midday Report: Fast Food Chains Battle for Thrifty Diners Amid Slow Growth
The burger war is on, again.
McDonald's (MCD) this week said it is dropping the Angus burger from its menu at U.S. stores.
It's part of a bigger picture battle between the leading fast-food burger companies to emphasize lower-priced items.
The Angus burger was one of the most expensive offerings on McDonald's menu, costing four to five dollars, depending on your toppings.
Another factor: beef prices are at a 10-year high, partly because of last summer's severe drought.
At the same time, hard-pressed customers are craving better deals. They want more options on the dollar menu.
Burger King (BKW) and Wendy's (WEN) are fighting the same battle. Wendy's is more aggressively promoting lower-priced items. Earlier this year it rolled out what it calls the "Right Price, Right Size" promotion. It includes more options costing less than two dollars. Wendy's is more heavily promoting its 99 cent items such as the Jr. Cheeseburger.
Burger King has been adding more items to its value menu. The Whopper Jr., for instance, costs $1.29. It's also been running a "2 for $5" promotion for the Whopper and other sandwiches.
Arby's also has been testing out new value meals. And because of high beef prices, all the major fast food chains are pushing more chicken and turkey burger options. McDonald's recently added chicken McWraps; according to Ad Age, the company sees the wrap as a way to keep customers from defecting to Subway.
All of this comes at a time when the fast-food industry is barely growing. McDonald's global same store sales last month fell six tenths of a percent last month while Wendy's sales rose just one percent.
Still, the cost-conscious consumer is the mainstay of the fast-food business, and the big players have to cater to their preferences. These customers spend less on each visit, but they visit more frequently. So the fast food companies are willing to sacrifice profit margins to increase their share of the market.
And the problems are not just here at home. These companies are facing very sluggish growth in key markets overseas, especially in Europe and Asia. Nor has China turned out to be the gold mine they expected. Yum Brands' (YUM) KFC unit, with more than 7,000 restaurants there, has struggled with bad publicity related to health concerns about its chicken supplies.
Despite these problems, most the fast-food company stocks have done pretty well. McDonald's and Burger King are both up 13 percent this year, and Wendy's has jumped 23 percent. Yum Brands is lagging a bit, up just five percent.