McDonald’s, Wendy’s, Burger King vie for low-income diners

Subway started phasing out its $5 footlong sandwiches a decade ago. But these days, other fast-food chains have revived the $5 price point, hoping to win over customers who have cut back their spending.

As many restaurant companies prepare to report their second-quarter results, investors are expecting to hear that diners are visiting their locations less frequently and that sales have turned sluggish, with few exceptions such as Chipotle. In the hopes of lifting their results for next quarter, chains such as McDonald’s, Taco Bell, Burger King and Wendy’s have unveiled or revived meal deals with a $5 price tag.

McDonald’s said it is seeing traffic increase as a result, although Wall Street is not expecting a big sales bump from the promotions.

Fast food typically fares better than the broader industry during economic downturns. But the last several years of price hikes have led many consumers to conclude that fast food just is not a good deal anymore. More than 60% of respondents to a recent LendingTree survey said they have cut back their fast-food spending because it is too expensive.

Runaway menu prices have scared off many fast-food customers, including those in the low-income bracket who make up a sizable chunk of the sector’s customer base. Sensing diners’ fast-food backlash, players such as Brinker International’s Chili’s have used their marketing to highlight their own value relative to the cost of a fast-food meal. Casual-dining chains have taken some market share from the fast-food sector, Darden Restaurants CEO Rick Cardenas said in June.

“It’s the war for the less affluent customer,” said Robert Byrne, senior director of consumer research for Technomic, a restaurant market research firm.

That change in consumer behavior has also scared away Wall Street. Shares of McDonald’s, Burger King parent Restaurant Brands International and Wendy’s have all slid by double digits this year. Taco Bell owner Yum Brands is down more than 1% in 2024. Meanwhile, the S&P 500 is up 14%.

“The sense among investors is that the second quarter is probably going to be one to forget — you’re going to see a lot of large chains probably miss consensus [estimates],” KeyBanc analyst Eric Gonzalez told CNBC.

McDonald’s is expected to report its second-quarter earnings on Monday, while Wendy’s is slated to announce its results on Wednesday. Restaurant Brands and Yum Brands are expected to report their quarterly earnings the following week.