The restaurant industry, after experiencing several challenging months, is witnessing signs of recovery, particularly for businesses that have been struggling.
Over the past two years, high inflation has driven up prices across almost every sector, leading consumers to become more mindful of their spending habits. Now, value has become a priority for individuals when selecting their next meal, with many opting for options that maximize their expenditure.
This shift in consumer behavior has spurred restaurants, especially fast-food establishments, to devise innovative ways to offer attractive deals while still achieving positive profit growth. According to a study by Black Box Intelligence, the previously dismal comparable restaurant sales numbers are reversing and are expected to turn positive in the fourth quarter.
In August, same-store sales experienced a 0.4% decrease year over year, marking the third consecutive month of negative growth, yet there was a 2% increase compared to the previous month. Same-store traffic reported a 3.6% decline from the prior year, the second-worst since January, but there was a 1.1% month-over-month increase. While fine dining had the best overall performance, restaurants in the fast-casual sector also reported positive growth.
Various fast-food chains have responded to customer demand by incorporating more value-oriented deals into their menus, which has resulted in positive feedback. During McDonald’s Q2 earnings call for 2024, CEO Christopher Kempczinski mentioned that due to inflation, McDonald’s aims to broaden its value offerings for long-term benefits rather than focusing solely on one-time or limited-time deals.
Recently, McDonald’s extended its $5 value meal deal, which was initially a summer-only promotion, through the end of the year. Additionally, the company offers free large fries with a minimum $1 purchase upon downloading its mobile app and Free Fries Friday with a minimum $1 purchase for online orders.
According to McDonald’s latest earnings report, global comparable sales decreased by 1%, and net revenues remained flat compared to the previous year. However, the $5 Meal Deal has been successful, boosting traffic and increasing sales due to its popularity among lower-income customers. McDonald’s President Joseph Erlinger stated in an earnings call that the enthusiasm surrounding the $5 meal deals has exceeded expectations, particularly among lower-income consumers, positively influencing the brand’s perception regarding value and affordability.
McDonald’s focus on its menu and staffing could potentially help the fast-food chain regain its footing. The same study found that restaurants with fully staffed back-of-house positions—referring to kitchen and storage staff—reported a 3.6% increase in traffic. Restaurants fully staffed in front-of-house positions, which include customer-facing employees like servers, saw an even more significant sales growth of 4.6%.
Last month, McDonald’s announced the addition of cash kiosks to its restaurants in response to the original cashless kiosks. The company clarified that this initiative would not lead to workforce reductions but rather aim to improve efficiency.
Although McDonald’s has missed analysts’ EPS expectations for the past two quarters, the company’s stock has risen by 2.18% year-to-date as of Tuesday’s market close. McDonald’s is scheduled to publish its Q3 earnings report on October 29.
