Fast food chain franchisees generally don’t like value menus. McDonald’s (MCD) – Get the McDonald’s Corporation report franchisees, for example, pushed back the chain’s legendary dollar menu to the point that the company had to revamp it into the current $1, $2, $3 menu. Subway owners have expressed similar issues with this company’s famous $5 menu.
The problem is that these heavily reduced menus often serve as loss leaders. It’s good if they attract customers to a chain’s locations and then buy higher margin items as well. It’s a problem when people arrive and only choose high value items.
When this happens, the franchisee may actually lose money on the transaction. It’s a huge problem, compounded by supply chain issues that drive up ingredient prices.
If a restaurant owner was ever upset with the price charged for low-end burgers and chicken nuggets or various other value offerings, they are likely to be very upset because these items are costing them more in the first place.
Value menus have long been a source of tension between franchisees and their overlords, but the current situation has squeezed margins even further. Now Restaurant Brands International (RSQ) – Get the Restaurant Brands International Inc report Burger King’s biggest franchise owner has decided to do something about its rising costs and customers aren’t going to like it.
Why You Can Pay More for a Whopper
Burger King built its business on the Whopper. This signature sandwich actually predates McDonald’s Big Mac, and it’s been part of some of the chain’s most popular promotions.
Daniel Accordino, managing director of the chain’s largest U.S. franchise owner, Carrols Restaurant Group (TASTE) – Get the Carrols Restaurant Group Inc reportmade it clear that Burger King promotions have changed and will continue to change due to supply chain issues.
“As you may have read recently, the Burger King brand has a dozen menu and promotional initiatives, some of which have already been implemented and others which will be implemented during this year,” did he declare.
“These actions have gradually contributed to the increase in our average checks over the past quarter and are designed to limit the impact of rising input costs and help improve profitability at the restaurant level.”
Most of this sounds like marketing, but Accordino shared two major menu changes it’s already made that consumers are unlikely to be happy with.
“Recent actions in this regard by 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 base discount item and is no longer available on 2 for $6 or 2 for $5 promotions. We we think it’s one of the most impactful initiatives underway.”
Thus, customers will have fewer nuggets for the same price and the Whopper will cost more because it will not be among the biggest deals in the chain.
Consumers may not like Burger King’s changes
When McDonald’s removed its $1 menu, consumers didn’t like it. The same thing happened when Subway stopped focusing on offering $5 subscriptions. The actual business impact, however, may not be severe or even noticeable.
The reality is that Burger King is not alone when it comes to raising prices or reducing what customers get for what they pay. Dominoes (DPZ) – Get the report from Domino’s Pizza, Inc. has already decided to cut back on its chicken offerings and is offering $3 “tips” to customers who choose to pick up their orders rather than have them delivered.
Starbucks (SBUX) – Get the Starbucks Corporation report seems to be increasing prices every year – and while people might complain, the chain’s steady growth suggests that few people decide to brew coffee at home or buy it elsewhere because of these increases.
The same can be said for Chipotle (GCM) – Get the report from Chipotle Mexican Grill, Inc.who has already acknowledged that increases in supply chain and labor costs will lead to higher menu prices.
The reality is that Burger King isn’t raising prices or cutting its number of nuggets in the void. It does so in a market that will likely force its rivals to quietly do the same. It could affect sales, but history suggests customers may complain, but they probably won’t stop ordering.