Restaurant CEOs focus on value as they aim to bring back customers

Restaurant CEOs have become obsessed with the word “value” in explaining to investors why their sales lagged this quarter while sharing plans to revive traffic in the coming months.

On McDonald’s quarterly conference call last month, executives said the word “value” nearly 80 times, underscoring the fast-food giant’s biggest priority.

And McDonald’s isn’t alone. Other leaders at restaurant companies from Taco Bell owner Yum Brands to pizza chain Papa John’s also used the word dozens of times in their latest conference calls.

“The word ‘value’ has received a lot of airtime in the past few months,” Josh Kobza, the CEO of Burger King parent company Restaurant Brands International, said on Thursday.

There’s a reason for that emphasis. Prices for food away from home have climbed 27.2% since June 2019, according to the Bureau of Labor Statistics. In response, restaurant traffic has fallen and sales are lagging as consumers spend less money dining out, no longer convinced that it’s a good deal.

Many chains are hoping to bring back customers through discounts and promotions, like the $5 meal deals found at McDonald’s, Burger King and Taco Bell.

“In this current economic cycle, consumers have become more deliberate in managing their overall ticket and are showing a preference for brands that are offering compelling value,” Papa John’s finance chief Ravi Thanawala said on the company’s call on Thursday.

For example, McDonald’s CEO Chris Kempczinski said his company’s reputation for value has dimmed recently. In the second quarter, the burger giant reported that its U.S. same-store sales declined 0.7% year over year.

“There were also factors within our control that contributed to our underperformance, most notably our value execution,” Kempczinski said on the company’s July 29 conference call. “For 70 years, McDonald’s has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership.”

McDonald’s $5 Meal Deal launched a few days before the end of the second quarter, but the value meal had been attracting low-income consumers and outperforming expectations, executives said. The chain is extending the promotion through August in most markets and working with franchisees on a longer-term discounting strategy.

Meanwhile, unlike McDonald’s and many other restaurants, Chipotle Mexican Grill reported strong same-store sales growth and increasing traffic for its latest quarter. But the burrito chain is still focusing on value, as it’s faced backlash from some customers who allege that the company has been shrinking the size of the portions.