Fast-Food Chains Competing for Low-Income Diners: A Value Battle

Pricing Strategies and Value Meals

Fast-food chains like McDonald's, Yum! Brands, Chipotle, and Domino's are leveraging pricing strategies such as value meals and economic models to offer affordable options. McDonald's $5 meal deal, Yum! Brands' focus on unit economics, Chipotle's unique model, and Domino's price-value balance all aim to attract and retain low-income diners.

"And so we're working through that at pace with them. In the meantime, obviously, we're continuing to offer consumers great value with the $5 meal deal extending in 93% of our restaurants into August, and we're working with our franchisees to extend that even" --- (MCD, earning call, 2024/Q2)

"The better their unit economics are, the more they build, the more they can afford to offer the right prices and value to customers and so on." --- (YUM, earning call, 2024/Q1)

"And today we have a special brand and unique economic model that allows us to spend more on our ingredients, yet remain one of the most affordable meals in the industry, while also maintaining industry-leading margins." --- (CMG, earning call, 2024/Q1)

"But because we've been in the right place from a price value perspective, our customers are very happy with what value we're delivering and our expectations is for continued transaction growth for the balance of 24." --- (DPZ, conference, 2024/06/10)

"meantime, obviously, we're continuing to offer consumers great value with the $5 meal deal extending in 93% of our restaurants into August, and we're working with our franchisees to extend that even longer." --- (MCD, earning call, 2024/Q2)

Marketing Tactics for Budget-Conscious Customers

Fast-food chains are focusing on affordability, creative promotions, data-driven marketing, and multi-channel strategies to attract budget-conscious customers. McDonald's emphasizes affordability and meal deals, Chipotle generates excitement through promotions, Yum! Brands leverages data and AI, and Domino's offers value through delivery promises and diverse sales channels.

"I think the sharp point and Chris mentioned this is just we've got that opportunity on affordability, and we're really laser-focused on making sure we can meet the need that consumers are expressing in the current context, but we feel really good about all the other aspects of the experience and how we're delivering against what customers are expecting." --- (MCD, earning call, 2024/Q1)

"cross-functional effort across supply chain, culinary finance and marketing to bring back this delicious LTO. Our marketing team also continues to find creative ways to generate excitement drive more engagement around our annual promotions." --- (CMG, earning call, 2024/Q2)

"We will leverage our data for insights and to drive more effective marketing and loyalty engagement, and we will deploy advanced AI tools to all aspects of our business." --- (YUM, earning call, 2024/Q1)

"As a pizza company with a 30-minute delivery promise and offering a free pizza coupon if late, serving customers across all sales channels, namely website, official WeChat mini program, APP and third-party sales channels, in China, DPC Dash benefits from its delivery strength in the fast growing delivery market." --- (DPZ, press release, 2024/04/08)

"Specifically, as it relates to customer awareness in the US of the meal deal and sort of thinking about the marketing message or the marketing intensity, is that something you could help us frame up for us where it is right now?" --- (MCD, earning call, 2024/Q2)

Customer Loyalty Programs and Incentives

Fast-food chains are enhancing loyalty programs to attract and retain customers. Domino's has introduced redemption tiers, McDonald's uses digital tools for personalized offers, Chipotle leverages a strong loyalty program and marketing team, and Pizza Hut offers points for every dollar spent. These strategies boost customer engagement and loyalty.

"This time, the loyalty program is structured around both the delivery as well as the carryout customer with some significant enhancements because we now have redemption tiers that, a, provide much more options in terms of product redemptions and, b, different tiers." --- (DPZ, conference, 2024/06/10)

"Through digital tools, customers can access personalized offers, participate in a loyalty program, order through our mobile app and receive McDonald's food through the channel of their choice." --- (MCD, sec filing, 2024/Q1)

"And I think it's a huge advantage that we have, the strength of this loyalty program combined with a really talented marketing team." --- (CMG, earning call, 2024/Q2)

"Pizza Hut is committed to providing an easy pizza experience – from order to delivery – and has Hut Rewards®, the Pizza Hut loyalty program that offers points for every dollar spent on food any way you order." --- (YUM, press release, 2024/05/06)

"Russell Weiner: Got it. Well, first on the loyalty program, I think it's safe to say that not only new customers, but existing customers are really engaging in the program." --- (DPZ, earning call, 2024/Q1)

Operational Efficiencies and Cost Management

Chipotle and McDonald's are leveraging operational efficiencies to offset seasonal pressures and investments, while Yum! Brands focuses on managing costs through new unit additions and depreciation. Chipotle's detailed cost management strategies include leveraging sales, reducing technology costs, and managing delivery expenses to maintain industry-leading margins.

"Most, if not all of this pressure is seasonal, temporary, or it's an investment that we can offset through efficiencies, and we believe our industry-leading margin structure is still intact. I'll now go through each of the key P&L line items, beginning with cost of sales." --- (CMG, earning call, 2024/Q2)

"million and healthy store level cash margins. We expect the addition of these units to provide approximately $40 million of incremental EBITDA in the 12 months after acquisition while the benefit to our operating profit will be largely offset over the next several years due to depreciation and amortization, including amortization of reacquired franchisees." --- (YUM, earning call, 2024/Q1)

"The resilience of our business and our overall financial strength put us in the ideal position to invest in critical areas that deliver against customer needs as well as unlock efficiencies for our people and our business." --- (MCD, earning call, 2024/Q1)

"We expect this investment will ease from these levels somewhat. We also believe that we can offset the remaining investment with efficiencies and innovation over time. While avocado prices are higher than the very favorable levels we have seen over the past several quarters, this is in line with our expectations from earlier this year." --- (CMG, earning call, 2024/Q2)

"Other Operating Costs Three months ended June 30, Percentage Six months ended June 30, Percentage 2024 2023 change 2024 2023 change (dollars in millions)   (dollars in millions)   Other operating costs $ 384.8 $ 349.7 10.0 % $ 770.5 $ 712.9 8.1 % As a percentage of total revenue 12.9 % 13.9 % (1.0 %) 13.6 % 14.6 % (1.0 %) Other operating costs decreased 1.0% as a percentage of total revenue for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, respectively, primarily due to 0.8% of sales leverage, a 0.1% decrease in restaurant technology costs, and 0.1% of lower delivery expenses, partially offset by 0.1% of increased utilities expense." --- (CMG, sec filing, 2024/Q2)

Technological Advancements in Service Delivery

Fast-food chains like McDonald's, Yum! Brands, Chipotle, and Domino's are leveraging digital advancements to enhance service delivery. McDonald's and Domino's are optimizing delivery efficiency through digital technologies, while Yum! Brands and Chipotle are expanding their technological capabilities to improve access and convenience.

"Delivery is -- sorry, digital, as you know, we've made a lot of progress in, and we know we continue to drive growth in digital more broadly." --- (MCD, earning call, 2024/Q1)

"creation potential of our capabilities. While the first phase of work in deploying our platforms will continue, given the critical mass we have achieved, we have initiated a second parallel phase in our technology journey." --- (YUM, earning call, 2024/Q1)

"I'm confident this process will further strengthen Chipotle as a leader in technology and innovation.Now moving to our final strategy, which is to expand access and convenience." --- (CMG, earning call, 2024/Q2)

"But maybe let's combine that question with tech advancements, right? And the fact that you've been pioneering the technological improvements in the restaurant space." --- (DPZ, conference, 2024/05/30)

"Domino's Pizza China provides professional delivery services, while also actively utilizing advanced digital technologies to optimize delivery routes and improve delivery efficiency." --- (DPZ, press release, 2024/04/09)