Fast food has a value marketing problem—experts on how to fix it

While stubborn food inflation has eaten into consumer purchasing power for years, reality has finally set in for fast food and restaurant chains—their value marketing is not working. This became clear in recent weeks as brands including Starbucks, McDonald’s, Pizza Hut and KFC reported disappointing quarterly earnings results with executives increasingly citing price-sensitive consumers as the culprit. While chains signaled more value marketing is coming—McDonald’s is reportedly working on a new $5 meal, for instance—just lowering prices won’t be enough, experts told Ad Age. Brands must streamline apps to more clearly communicate discounts and rewards, even putting themselves side by side with competitors to show who has the better deal. But in doing so, marketers must not stray too far from what their brand has always stood for. The challenge for some, including Starbucks, is that they have not made value a part of their core brand identity and risk sounding patronizing. Check out the latest Ad Age events and award programs “There is a difference between putting a deal out there and how it relates to the totality of the brand,” said Todd Sussman, chief strategy officer at FCB New York. “Creative done right can make value part of a brand’s story and not just a reaction to the economic times. You should be reacting, but in a way that does not discount the brand … You need to have a higher empathy for the moment and not just give a deal, but a value exchange. Consumers don’t want to feel like you’re giving them a handout.” Restaurant menu prices have been steadily rising for several years—fast-food prices in March were 33% higher than 2019 levels, according to Labor Department figures recently cited by the Wall Street Journal. The decrease in fast-food traffic, especially from lower-income consumers, isn’t sudden. There have been hints in previous earnings—consumers still coming in but buying fewer things, and then as prices rose, a drop off in traffic. But executives portrayed a more drastic drop-off in recent quarterly results. Also read: The top 5 food and beverage marketing ideas, ranked “We continue to feel the impact of a more cautious consumer, particularly with our more occasional customer and a deteriorating economic outlook has weighed on customer traffic,” Starbucks CEO Laxman Narasimhan said during an April 30 earnings call after the coffee chain reported a 7% decline in U.S. traffic while losing 1.5 million loyalty program members for the quarter ending March 31. Applebee’s U.S. same-restaurant sales were down 4.6% in the quarter ending March 31, with parent company Dine Brands CEO John Peyton telling analysts that the brand can see that consumers are hungry for value deals—28% of the chain’s first-quarter transactions came from limited-time and value-related promotions, up from 19% last quarter. In that same period, Pizza Hut’s U.S. same-store sales were down 6% and KFC’s were down 7% due to “unfavorable weather events and chicken value promotions from [fast food] competitors,” parent company Yum Brands CEO David Gibbs told analysts. McDonald’s reported a decline in traffic from lower-income consumers. “Everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently. And we’ve got to make sure we’ve got that street-fighting mentality to win irregardless of the context around us,” McDonald’s Chief Financial Officer Ian Borden said during an April 30 earnings call. The new $5 value meal—which Bloomberg reported could include a McChicken or a McDouble along with fries and a drink—appears to be part of that fight. The chain currently does not have a national value meal, McDonald’s CEO Chris Kempczinski noted during the call. Rivals Burger King offers two sandwiches for $5 and Wendy’s a two-for-$3 breakfast deal as well as “Biggie Bags,” which include a sandwich, four-piece chicken nuggets, a small fry and a small soft drink. For the discounting to work, brands must get the word out via advertising. “You need to turn up media support behind those deals,” said Peter Saleh, managing director of restaurant research at BTIG Research. “And it will take time for that value to resonate, consumers don’t come running back.” Comparison advertising One way to make deals resonate is to compare them to what others are offering. Consider Chili’s, which has taken direct aim at fast food chains by pitching its $10.99 “Three For Me” deal, consisting of a bottomless non-alcoholic beverage, bottomless chips and salsa, and a burger and fries, as a better deal. One ad directly calls out McDonald’s Big Mac. Comparisons can occur in more subtle ways, too. Little Caesars, for instance, is marketing new Crazy Puffs in an ad stating you can get four of the mini pizza cups for $3.99. Jasmine Dadlani, chief strategy officer at McKinney, which works with Little Caesars, said that the price point was driven by Starbucks’ egg bites, which are often priced at two-for-$5 or $6. “Context matters to consumers, so we heavily emphasized that all four are for $3.99,” she said. Popeyes, which also works with McKinney, had a recent campaign where customers could get a free six-piece wing meal with a $10 minimum order. The promo codes were all related to competitors—StopWings (a shot at Wingstop), OpenSunday (Chick-fil-A), and NotThatWild (Buffalo Wild Wings). View this post on Instagram A post shared by @popeyes All about the apps Apps and loyalty programs are also rising in importance. “Technology allows for more personalized value offerings, and that can bring certain prices down to be more one-on-one with the consumer,” said J. Walker Smith, a senior knowledge lead at Kantar. Personalization is a big priority for McDonald’s, which last week confirmed it would invest “hundreds of millions of dollars” in its digital marketing over the next few years. “Our goal is to know our customers better than anyone else, leveraging data to deliver the right message, at the right time, to the right customer—supporting repeat visits,” stated a memo sent to U.S. partners from Tariq Hassan, senior VP and U.S. chief marketing and customer experience officer, and Whitney McGinnis, senior VP and chief information officer. Starbucks’ plans include speeding up service and improving mobile app ordering, Narasimhan emphasized on the earnings call and media interviews. He also wants to roll out new items like boba tea pearls and energy drinks, and more food items to lure in consumers outside of peak hours in the morning or late afternoon. But former Starbucks CEO Howard Schultz in a LinkedIn post stressed that the answer to Starbucks’ sluggish sales “does not lie in data, but in the stores.” He agreed that Starbucks needs to update its app ordering experience, but added that he would refocus on core coffee products and the store experience. “Through it all, focus on being experiential, not transactional,” he wrote. App push notifications are a good way to remind consumers about deals—but there is a risk of sending too many, said Matt Talbot, chief creative officer at WorkInProgress, which has Domino’s as a client. Brands will also be looking to attract more consumers away from aggregator platforms including DoorDash and UberEats to build up first-party data and learn when and what customers order to personalize deals, suggested Jerry Hoak, chief creative officer at The Martin Agency. They could offer cheaper delivery, or weekly free items as incentives. “Apps seem like table stakes but I think a lot of brands have not invested a lot there,” he said. “People have ingrained behaviors when it comes to ordering food, especially through the aggregators. Obviously, it's better for brands if customers order through their apps, but they need to build that desire." Staying true to your brand The increased value push means creative agencies will have to get used to briefs on the topic. “People don’t want to work on value campaigns because they’re not going to win a Cannes Lion,” Talbot said. “CMOs and brand marketers are in the same space —they want to be celebrated for cool creative work. And they don’t think value is cool or sexy and try to avoid it even when it’s important for [fast food].” But there are creative ways to tell value stories while staying true to what a brand stands for. Also read: Unilever named 2024 Cannes Lions Creative Marketer of the Year Last year, for instance, Domino’s, began an “Emergency Pizza” marketing platform that drove loyalty program sign-ups by giving members a free pizza to use within 30 days. The chain has also kept its mix-and-match menu deal at around $7 since 2022. “Customers just don’t want surprises,” Domino’s CEO Russell Weiner told the Wall Street Journal. It seems to be working for Domino’s—the company’s U.S. same-store sales were up 5.6% for the first quarter. FCB’s Sussman pointed to the 2018 Cannes-winning Whopper Detour campaign he worked on which used mobile geofencing to steer customers away from McDonald’s. People who went within 600 feet of most McDonald’s locations were sent a mobile notification offering a Whopper for just one penny. After they placed an order, the app directed them away from McDonald’s and toward the nearest Burger King outlet to retrieve their food. The goal was to promote Burger King’s new order-ahead feature and drive app downloads. It worked—the campaign drove more than 1 million app downloads within a few days. “Burger King had been giving out deals and incentives to download the app for years,” said Sussman. “Rather than just the straight deal of ‘Download to get a free Whopper,’ we wrapped that deal in good creative that was still in the context and voice of the Burger King brand. It was a little cheeky and aimed at a competitor and it was better received.” Check out the latest Ad Age events and award programs Hurdles ahead As restaurant brands battle, they must also keep an eye out for grocery competition. “Those grocery stores can start offering competition through their deli counters or ready-made-food sections,” Smith said. “And more have been investing a lot in their private labels.” Walmart, for instance, recently announced a new store brand called Bettergoods, which the retailer touted as a “new elevated experience that delivers quality, unique, chef-inspired food at an incredible value.” Casual dining and fast feeders will face more headwinds as the year progresses, Saleh predicted, starting with the Olympics in a few months, when consumers will stay home to watch the events rather than go out to eat. Historically, chains see a slight dip in traffic during the summer months as more consumers travel or host barbecues at home. And then in the back half of the year, marketers will have to compete with political ads heading into the election, meaning there will probably be less value marketing. “It's not just higher prices but its volatility,” said Smith. “The volatility people are living with has increased and it's not just economic— technology, politics, international news. I think people want a brand and experience that gives them a respite from this volatility.”

Fast food has a value marketing problem—experts on how to fix it

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