Don’t be fooled by fast food companies’ latest marketing efforts toward their new value menus. It’s a smokescreen to hide the fact that they’re raising their prices.
Remember when McDonald’s had its “Dollar Menu”? Want to know why it morphed into the “Dollar Menu & More”? It wasn’t to “fill the need for choice, flexibility and other preferences,” as the company put it. It was so that McDonald’s could mix the standard $1 items with $2 goods and $5 shareable meals.
Or how about Wendy’s “Right Price Right Size” menu? Nice name, huh? At first glance, it even sounds like Wendy’s understands its customers don’t want to spend a lot of money when they visit. But personally, I prefer the menu’s old name: 99-cent bargain menu. It’s cheaper than the current menu, which includes items that cost as much as $2 each.
This is not a coincidence. It’s by design. Value menus are suddenly rising in price for the following reasons:
Falling sales. According to NPD Group Inc., value menu orders at fast food outlets fell 7% in 2012 and dropped 11% in 2011. One of the reasons for this, analysts say, is that consumers have begun questioning the quality of value menus, which rarely include fruits and vegetables. Additionally, health experts who blame fast food for the rise in diabetes and obesity in the U.S. have become more vocal in their claims that value menus make fast food more accessible, leading to increases in these health risks.
Higher food costs. Fast food restaurants are being forced to raise prices to cover increasing food costs, meaning fewer burgers and other sandwiches at or less than a buck. According to a report from the research firm Mintel, the number of menu items priced at $1 or less has fallen 26% over the past three years.
Rising labor prices. Many fast food outlets are warning that the new federal healthcare reforms could squeeze their margins and force more price increases. Additionally, higher work pay is becoming a factor. Last September in California, for example, Governor Jerry Brown signed off on legislation raising the state’s minimum wage from $8 an hour to $10 an hour by Jan. 1, 2016. John Gordon, founder of Pacific Management Consulting Group, said such a move will more than likely push the fast food industry to raise its lowest prices from 99 cents to $1.99.
Rising value menu prices is a trend that’s going to continue. As it does, don’t be fooled by creative marketing techniques that try to conceal this trend, even if the items remain at a dollar or less. Del Taco’s “Buck & Under Menu,” for instance, may sound good, but many of the items on the menu were always under $1 and are actually more expensive than they used to be.
Value menus are offering less value than before. Adjust your wallet accordingly.
Nevin Barich is the Food & Beverage analyst for Industry Intelligence, a Los Angeles-based market intelligence firm. It's the perfect job for him: He loves junk food, he often works besides a glass of Diet Dr. Pepper, and anytime one of the health nuts in his office gives him grief for eating a Big Mac, he gets to smile and say: "Hey, this is my job." Email him at [email protected] or follow him on Twitter.