Fast Food Prices on the Rise: Applebee’s and Chili’s Offer Alternatives
As fast food chains like McDonald's increase their prices, alternatives like Applebee's and Chili's are becoming appealing options. Consider a slightly slower dining experience with these restaurant giants, as they provide a budget-friendly alternative to pricey fast food meals.
McDonald's and other fast food chains have increased their prices, prompting consumers to explore other options. Applebee's is suggesting that you consider trying their burger instead.
In an interview with CNN, John Peyton, CEO of Applebee's parent company Dine Brands, mentioned that you can enjoy their burger for $9.99. He questions why you would choose to spend the same amount on a fast food burger that you eat out of a bag in your car.
If Peyton's sales pitch connects with customers, it might persuade them to choose sit-down restaurants over other options they may consider too extravagant.
For a period of time, customers were opting for less expensive dining options to save money. However, with the rise in menu prices, some are now choosing to eat at home more often and spending less when they do go out to eat.
That means that restaurants have to battle it out for these cost-conscious consumers. And now, it’s not just burger chain against burger chain.
People work at a Starbucks in Manhattan on February 02, 2024 in New York City.
People work at a Starbucks in Manhattan on February 02, 2024 in New York City.
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Fast food restaurants have been increasing their prices lately, which means that dine-in establishments like Applebee's can now run promotions that are comparable in cost to a fast food meal. This gives them the opportunity to attract customers who may have been loyal to fast food joints.
According to Peyton, this overlap presents a fresh chance for Applebee's. The cost of having lunch at McDonald's is now similar to the cost of dining at Applebee's, where you can enjoy your meal at a table and have it served to you by a waiter. This comparison is a new strategy to entice customers to choose Applebee's over fast food options.
Applebee’s is trying to attract customers by offering deals at lower prices. Meanwhile, Chili’s is directly comparing their prices with competitors. Both restaurants, along with fast food chains, are facing high stakes in this competitive market.
A smaller pie
Years of price hikes have contributed to declining traffic, pushing restaurants to fight over fewer customers, according to Henkes.
"It’s a smaller pie today than it was a year ago,” he said. “You’re competing for a share of a smaller market. And so it is more competitive.”
Fast food prices, in particular, have shot up. “Fast food has gotten really expensive,” Henkes said. “Certainly, relative to where it was 12 to 18 months ago, and also in comparison to casual dining sit-down restaurants right now."
Prices at fast food and fast casual restaurants increased by 5% in the 12 months through March, according to data from the Bureau of Labor Statistics. Full-service menu prices also went up by 3.2% during this period, while grocery prices saw a smaller increase of 1.2%.
A few years ago, McDonald’s believed it could raise prices without losing many customers. However, the company is now facing challenges with retaining lower-income customers.
Red Lobster has struggled and reportedly is considering a bankruptcy filing.
Red Lobster has struggled and reportedly is considering a bankruptcy filing.
Michael Nagle/Bloomberg/Getty Images/File
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Red Lobster faced challenges as CEO Chris Kempczinski mentioned in a February analyst call that the focus was on the low-income consumer. In the following month, CFO Ian Borden also acknowledged during another analyst call that the consumer environment was tough.
The chain is working on a $5 menu to win over those customers, according to Bloomberg.
Things aren’t much better over at Applebee’s.
Sales at US Applebee’s locations open at least a year dropped by 4.6% in the first quarter. During this time, customers earning $50,000 or less per year visited less frequently and spent less money when they did. Peyton mentioned that this demographic accounts for about 45% of Applebee’s customers.
Peyton expressed, “For several quarters, we have been wondering when we will start to feel the effects of inflation, the economy, and interest rates on our guests. We started to notice these impacts in the first quarter.”
He added that “we think it’s going to be a fight for share of wallet and market share all year.”
Fast food as a foil
Sit-down restaurants can be a good option when fast food prices are high. Some people have been expressing their concerns about the prices of fast food on social media. For example, there have been complaints about the cost of McDonald’s burgers and hash browns. Chili’s has been listening to these conversations.
"Our social media team has been keeping an eye on discussions where customers are feeling upset about the high prices of fast food," mentioned Kevin Hochman, who is the president of Chili’s and also the CEO of its parent company, Brinker International, in a call with analysts in April. To address this, Chili's made the choice to create advertisements that contrast fast food prices, he explained.
Chili's is making a bid for McDonald's customers.
Chili's is making a bid for McDonald's customers.
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Chili's recently announced the addition of a new burger to its '3 for me' value menu in an April press release. Described as having "twice the beef of a Big Mac and flavors fast food lovers will recognize," customers can enjoy the burger, along with an app and a drink, all for $10.99.
On a recent occasion, Chili's sparked a debate by asking whether their food is superior to fast food options. Those who sided with Chili's were promised rewards. Additionally, Chili's released video ads showcasing their food in a favorable light compared to fast food burgers.
It may not be so simple. According to David Henkes, a senior principal at Technomic, a food industry research and consulting firm, persuading people to choose Chili's over McDonald's could be challenging.
One of the challenges faced by chains like Chili's and Applebee's is that they are not primarily competing based on price, but rather on convenience and speed.
When people decide to dine at sit-down restaurants, they usually have different reasons compared to when they choose to eat at fast food restaurants. For example, you can plan to spend around an hour at a Chili's or an Applebee's, while you might quickly grab a meal at a McDonald's.
Despite this difference, promotions and marketing efforts by restaurants like Chili's can show customers that their food is actually quite affordable nowadays.
“Planting that seed that, ‘Hey, we’re a good value,’ I think is a good message to have,” Henkes said.
Editor's P/S:
The article highlights the increasing competition between fast food chains and sit-down restaurants as a result of rising menu prices. Applebee's is aiming to capitalize on this situation by offering comparable prices to fast food meals, but with the added convenience of a sit-down dining experience. They are betting that customers will be willing to pay a similar amount for a more comfortable and enjoyable meal.
Chili's is taking a more confrontational approach, directly comparing their prices to fast food chains and emphasizing the superior quality of their food. They are trying to persuade customers that their burgers are worth the extra cost, even if they are not as convenient as a quick drive-through meal. It remains to be seen whether these strategies will be successful in attracting cost-conscious consumers, but it is clear that the battle for market share is intensifying as restaurants adjust to the changing economic landscape.
