Rising costs and inflation are reshaping fast-food, forcing chains to cut portion sizes, eliminate deals, and hide the value menu
- Fast-food chains are grappling with inflation and rising costs.
- To cope with pricing pressures, many chains are increasing prices and eliminating deals.
Chains have to consider raising prices thanks to new and costly challenges that have emerged, like inflation and growing labor costs, Kalinowski Equity Research CEO Mark Kalinowski told Insider. They "don't necessarily want to discount as heavily" as they did a few years ago, so low-cost value menus can be the easiest choice to go.
One way to quietly raise prices is by swapping in lower-cost ingredients or shrinking portion sizes to make the meal seem cheaper, David Henkes of Technomic told CNBC.
Despite projections for between eight and 10% inflation in 2022, Allison explained on CNBC that the chain decided not to increase the price, which customers were already familiar with.
Other chains have been more open about raising prices on menu items.
Then, some chains opted to eliminate some of the lower-priced deals. Burger King is eliminating paper coupons and making around a dozen changes to US menus to increase profits, the chain said, including raising prices on nuggets, french fries, and bacon cheeseburgers. Denny's is reducing promotions of low-priced menu items, and has stopped advertising its
Straight menu price increases are the most common way brands do this, Kalinowski said, though they ideally like to keep it quiet.
As brands eliminate or raise prices on lower price items, they shift to promoting combos or more expensive long-term offerings.
Since then, Taco Bell has focused on combo meals exclusively available online, and higher-priced limited-time items. The chain brought back the Grilled Cheese Burrito in November, which helped boost profits the first time it was sold in July 2020. Taco Bell also recently promoted wings for just one week, which were priced at $5.99 for five wings. This is an example of a menu shift, where a chain rolls out more expensive offerings while quietly taking cheaper ones off menus, Kalinowski said.
Inflation has hit fast food, along with the rest of the economy, as ingredients and labor both become more expensive. US inflation was up 7% year-over-year in December according to the Bureau of Labor Statistics, the highest level since 1982.
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