By Roshan Fernandez and Heather Haddon
Robert Sroka is the steady customer that the restaurant industry wants right now, dining out several times a week.
In another way, the 35-year-old Maryland resident is a problem: He often chooses his destination based on the biggest discount offer.
Promotions and discounts have become the U.S. restaurant industry's go-to lure for lapsed customers. Restaurant prices are up around 30% from prepandemic levels, according to the Labor Department, and chains are struggling to keep diners coming.
Sroka, an assistant professor of sport management at Towson University, said he goes to Shake Shack some Sundays, when the chain offers free chicken sandwiches with a minimum $10 purchase. He swooped when Domino's Pizza offered half off on parts of its menu and, after that deal disappeared, pivoted to its carryout promotion for a $7.99 one-topping pizza.
"I get the deal that I want, and that's usually all they'll get out of me," Sroka said.
An estimated 81% of North American consumers have ordered a fast-food value meal in the past three months, according to a September survey of 1,793 diners by market-research firm Intouch Insight. Around half said the promotions prompted them to eat out more often or switch chains.
But deals aren't always translating to profit and don't necessarily keep customers coming back, companies and analysts said, leading restaurant-chain executives to gut-check whether discounts and freebies are paying off. Starbucks earlier this year dabbled with a coffee and breakfast item bundle starting at $5, but months later yanked it, saying the new discounts weren't working.
KFC parent Yum Brands and Popeyes owner Restaurant Brands International both said earlier this month that their U.S. offerings hadn't pumped up traffic as much as hoped at their chicken-oriented restaurants. Both chains now are introducing new options at lower prices.
El Pollo Loco said last month that its orders fell in its latest quarter after its promotions on salads and burritos, priced between $9 and $12, didn't attract enough customers. The California-based chicken chain since then has added meals for tacos and a signature bowl priced at $5, which Chief Executive Liz Williams said is proven to resonate with diners.
"For many, many years, it's been a magical price point in the industry," Williams said in an interview.
Traffic to fast-food restaurants was down this year through September compared with last year's period, restaurant consulting firm Revenue Management Solutions said. The increase in affordable meal options likely prevented it from falling further, the firm said, and contributed to a 2.8% increase in October versus the same period last year, RMS said.
But RMS expects restaurant traffic to continue to decline this year. "Customers are quick to reduce their fast-food frequency once they see deals end," the firm's analysts said.
Beth Ann Kaminkow, global chief commerce officer at brand marketing agency VML, said the most effective and memorable promotions -- such as new limited-time offerings, brand collaborations and "secret" menus -- offer intrigue and novelty.
"You have to really turn somebody more into a loyal customer, not just somebody who's voting on price, who's selecting and coming to you for the one price deal," Kaminkow said.
Many chains are leaning on their apps to cultivate repeat customers. Williams said El Pollo Loco aims to reengage lapsed customers -- including those who chase other chains' deals -- through app-based promotions, including three tacos for $5 on Tuesdays.
Sit-down chain BJ's Restaurants said that a loyalty program offering a free serving of its signature cookie dessert for $4.99 a month has boosted traffic, but hurt sales and profit while complicating operations for staff.
"We're still in kind of this discovery and learning phase," BJ's President Lyle Tick said on a quarterly conference call last month.
Brett Schulman, CEO of Cava, said the Mediterranean-style chain gives priority to value -- offering a good amount of food for what customers pay -- instead of discounts.
Cava has largely dodged the restaurant industry's woes, reporting this month an 18% increase in same-restaurant sales in its latest quarter compared with the same period last year.
"You can't discount yourself to prosperity," Schulman said in an interview.
Promotions are delivering some success at McDonald's. The fast-food giant said last month that its $5 meal bundle, which was introduced in June, boosted traffic with lower-income consumers in the U.S. for the first time in roughly a year. Customers who chose the bundles also tended to add more items with their purchase.
McDonald's said on Friday that in January it will introduce a new menu that includes the $5 meal deal, app offers, and a "buy one, get one for $1" promotion.
The McDonald's app gets Jeff Berg to visit twice as often as the 61-year-old diner ordinarily would. He also savors the bonuses it offers, including free ice cream after racking up enough points.
Still, Berg and other consumers said they wish fast-food chains would lower their everyday prices.
Erika Winters, a financial-services professional, said she used to eat fast food about once a week, but nowadays it is once a month -- if that.
She tried the McDonald's $5 meal deal during the summer when her college-aged sons returned home to Grand Junction, Colo., but she felt the options were too limited.
"It was OK, but it wasn't like, 'Oh wow, I remember how much I love fast food,'" Winters said.
Write to Roshan Fernandez at roshan.fernandez@wsj.com and Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
November 25, 2024 05:30 ET (10:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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