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Do fast-food price wars suggest recession ahead?

By Jonathan Lansner • Jan 8, 2018 at 7:00 AM

I’ve long been a “discountologist” specializing in “couponology.”

This is the art of tracking merchants who are significantly slashing prices and which ones are simply “marketing” with fairly ordinary deals.

This analysis of bargains comes in handy when managing household finances. But I also use it as a reliable economic indicator.

It’s an odd practice requiring some backward logic. A flood of discounts may be good for your finances but it might also signal bosses are getting desperate — and your job security could be at risk.

Remember all those great deals you could get … during the Great Recession?

Welcome to 2018 and the great, new fast-food price wars.

TV and radio, social media, restaurant windows, email inboxes … even postal mailboxes are littered with what McDonald’s has erupted: renewed mega-marketing of dollar menus at fast-food titans. It’s an awkward turnabout from “we can make better food” campaigns.

Late last year, McDonald’s began pitching a reinvigorated collection of menu items at $1, $2 and $3. This was the fast food giant’s first serious attempt at pushing its “dollar menu” in half a decade.

You’ve got Jack-in-the-Box, which was previously pitching an upper-scale rib-eye burger, now highlighting its “Value Done Jack’s Way” with items from $1 to $5. Meanwhile, Wendy’s added more menu choices to its “4 for $4” combo meals.

In the Mexican-themed corner, Taco Bell’s got its $1 Cravings Menu. And Del Taco, which had been boasting about its higher-quality queso sauce, went the lowest with cheap eats starting at 69 cents.

And now struggling Subway reluctantly joined the fray, a selection of full-sized footlongs at $4.99.

If you take a discountologist’s view that deals are problematic for the economy, should we be worried? Especially when “couponology” notes no coupons are required to get these tasty promotions. So everybody’s invited to the party!

Well, it’s kind of early in this price war to hoist a broad-brush warning flag. Especially right after consumers spent heartily over the holidays with what this discountologist saw as less-than-remarkable “bargains” as motivation. Let’s see what’s at stake …

Q. Is it seasonal?

A. The first few month’s of any year are tough for anybody pitching goods to consumers whose budgets have been tapped out by holiday spending. So discounting is very common in January and February in the fast-food game.

But often the price cuts are offered via limited-time coupons. This year, it’s prime-time advertising.

So let’s see if this dollar-menu push extends well into 2018 before we declare this a serious change of heart.

Q. Is it serious?

A. The hefty ad dollars thrown at this concept suggest this isn’t a “limited time offer” even though some chains hint current pricing is temporary.

We’re seeing certain chains peddling new products designed for these deals, adding a level of seriousness of the low-price push. Some of that innovation is simply marketing sizzle. A chunk of it is creating items that can sell profitably at these prices.

Either way, this price war isn’t a gimmick.

Q. Is it needed?

A. The overall fast-food business has been stagnant of late, so fresh ideas are welcome.

Much of any recent sales gains have largely been created by price increases rather than increased customer counts or extra purchases. Maybe the chains went too far with price hikes.

Plus, the economic recovery has been long enough to lift the finances of many potential fast-food customers to a point where cheaper eats are a necessity. That leaves the quick-serve chains fighting for those folks stretching a budget.

Q. Is it just a food fight?

A. Fast-food chains spend every waking moment seeking more market share. So in some ways, it’s business as usual.

But the lower-priced chains have spent the past few years fighting the upstart “gourmet” quick-serve places that captured an enticing slice of the pricier sandwich market. The switch back to the dollar menus suggests consumers aren’t buying the big chains’ “quality” pitch.

Keep an eye on other consumer-facing industries to see if fast food’s deep discounting becomes a wider phenomenon.

Q. Is it a signal?

A. At this moment, it feels like a massive me-too effort. McDonald’s is so big that its dollar-menu push could not be easily ignored.

Now we wait and see how successful this value effort is. Certainly, this marketing switch should have some initial pop as numerous household budgets need a post-holiday pick-me-up.

But if you still see giant signs pitching dollar menus adorning fast-food store windows in, say, summer … I’ll start wondering if the economy isn’t generating enough sizzle.

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©2018 The Orange County Register (Santa Ana, Calif.)

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