Less is still more for US restaurant chains

McDonald's, Taco Bell, Chipotle are hesitant to raise menu prices despite the expected increase in commodity costs.

By Trefis Jan 16, 2013 5:39PM
Image, Family at diner copyright IT Stock Free, SuperStockWhile the country might have avoided the fiscal cliff with lawmakers finally passing the American Taxpayer Relief Act of 2012 (ATRA), it seems the restaurant chains are still not confident about the consumer spending environment going into 2013.

A recent survey by Nation's Restaurant News found that restaurants are reluctant to raise menu prices despite rising commodity costs. Restaurant chains expect commodity costs to increase 3% on average in 2013 but are hesitant to increase menu prices in the wake of weak comparable sales figures. 

McDonald's (MCD) strategy to focus on the more profitable Extra Value meals (such as the 20 Chicken McNuggets for $4.99) did not exactly go as per the management's plan. 

The company found itself reporting a near-zero comparable sales figure, after which it decided to revert back to the more reliable value meals such as the Dollar menu. The strategy seems to have paid off, at least that's what the initial results suggest, with November same-store sales rising 2.4%.

 


McDonalds Annual Customers per RestaurantTo take on McDonald's, Taco Bell is currently testing a new $1 Cravings menu, which includes items such as spicy chicken mini quesadilla, spicy cheese roll-up and a smaller version of its beefy cheesy burrito. The restaurant chain will soon start marketing its Happier Hour menu as well.


Meanwhile, the restaurant chains that aren't rolling out cheaper menus are reluctant to increase prices. Take the case of Chipotle Mexican Grill (CMG). Its same-store sales dwindled in the last couple of quarters partly because of increased competition from the lower priced Cantina menu (offered by Taco Bell). The company admitted earlier that it might face commodity cost pressures in the fourth quarter of 2012 and early 2013 but will be hesitant -- and certainly not the first one in the industry -- to raise prices. It would rather play a waiting game and if its competitors were to raise prices, then it may follow suit.


Trefis has a $93.60 price estimate for McDonald's, which is about 5% higher than the current market price.
Tags: CMGMCD
5Comments
Jan 16, 2013 6:14PM
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The restaurants are cutting down their quantity of food everywhere.  Look at the size of the burgers in the fast food,  the size is getting smaller.
Jan 17, 2013 8:28AM
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Not in Ireland or the UK. They're filling the gap with horsemeat. Months ago when they announced they would start killing off a lot of wild horses-----I wondered where the meat was heading----kind of hoping dog or cat food?
Jan 17, 2013 10:57AM
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I don't condone it,,,,,But Europeans, and some Canadians have eaten horse meat for generations.

 

And other Countries disdain it...We are one of them.

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