Fast-food chain franchisees generally dislike value menus. McDonald’s (MCD) – Get McDonald’s Corporation Report franchisees, for example, pushed back against the chain’s legendary dollar menu to the point that corporate had to revamp it into the current $1, $2, $3 menu. Subway owners have expressed similar problems with that company’s famous $5 footlong menu.
The problem is that these heavily discounted menus often serve as loss leaders. That’s fine if they draw customers to a chain’s locations and they then also buy wider-margin items. It’s a problem when people come in and pick only high-value items.
When that happens the franchisee may actually lose money on the transaction. That’s a huge problem, made worse by the supply-chain issues that are driving ingredient prices higher.
If a restaurant owner was already upset at the price being charged for low-end hamburgers and chicken nuggets or various other value offerings, they’re likely to be very angry as those items cost them more in the first place.
Value menus have been a source of tension between franchisees and their corporate overlords for a long time, but the current situation has squeezed margins even tighter. Now, Restaurant Brands International’s (QSR) – Get Restaurant Brands International Inc Report Burger King’s largest franchise owner has decided to do something about its rising costs and customers are not going to like it.
Why You May Pay More for a Whopper
Burger King built its business on the Whopper. That signature sandwich actually predates the McDonald’s Big Mac, and it has been part of some of the chain’s most popular promotions.
Daniel Accordino, chief executive of the chain’s largest U.S. franchise owner, Carrols Restaurant Group (TAST) – Get Carrols Restaurant Group Inc Report, has made clear that Burger King’s promotions have changed and will continue to change due to supply chain issues.
“As you may have recently read, the Burger King brand has about a dozen menu and promotional initiatives, some of which have already been implemented and some that will be implemented over the course of this year,” he said.
“These actions contributed incrementally to our average check increases this past quarter and are designed to limit the impact of higher input costs and help improve restaurant-level profitability.”
Most of that sounds like marketing speak, but Accordino shared two major menu changes that it has already made, which consumers are likely to not be happy about.
“Recent actions in this regard from our franchisor include lifting price caps on value menu items and reducing the number of nuggets in meals from 10 pieces to 8,” he said.
“The Whopper, the brand’s most popular product by a wide margin, has also been removed as a core discount item and is no longer available on the 2 for $6 or 2 for $5 promotions. We believe this to be one of the most impactful initiatives underway.”
So, customers will get fewer nuggets for the same money and the Whopper will cost more because it won’t be part of the chain’s biggest deals.
Consumers May Not Like Burger King’s Changes
When McDonald’s phased out its $1 menu, consumers were not loving it. The same thing happened as Subway stopped focusing on offering $5 subs. The actual impact on business, however, may not be severe or even noticeable.
The reality is that Burger King does not stand alone when it comes to raising prices or cutting what customers get for what they pay. Domino’s (DPZ) – Get Domino’s Pizza, Inc. Report has already made a move to cut the count on its chicken offerings and it’s offering $3 “tips” to its customers who opt to pick up their orders rather than have them delivered.
Starbucks (SBUX) – Get Starbucks Corporation Report seems to raise prices every year — and while people may grumble, the chain’s steady growth suggests that few decide to make coffee at home or buy it elsewhere because of those increases.
The same can be said for Chipotle (CMG) – Get Chipotle Mexican Grill, Inc. Report, which has already acknowledged that supply chain and labor cost increases will result in higher menu prices.
The reality is that Burger King isn’t raising prices and cutting its nugget count in a vacuum. It’s doing so in a market that’s likely to force its rivals to quietly do the same thing. That could affect sales, but history suggests that customers may complain, but they’re not likely to stop ordering.
