In an era defined by inflation, America’s leading quick-service and casual dining restaurants are fighting to keep their customers.
The Three Dollar Menu
In the past four years, price inflation has been the defining economic issue for most Americans.The cost of living is rising quicker than wages, and more Americans are struggling to get by. When voters went to the polls in the November 2024 general election, they told pollsters that the economy and inflation were the biggest motivations for how they voted.
The price of eating out, according to data collected by the Bureau of Labor Statistics (BLS), is rising faster than overall inflation.
According to the BLS’s Consumer Price Index (CPI) dataset focused on the price of “limited service meals and snacks,” the cost of eating away from home rose by about 36.7 percent between January 2019 and November 2024. By comparison, the overall CPI rose by about 25.3 percent during the same period.
In 2024, the personal finance media organization FinanceBuzz published a study examining exactly how much the menu prices at leading quick-service restaurants (QSR) increased over 10 years. The study, last updated on Nov. 12, 2024, observed that every major chain in the United States raised its prices at a higher rate than inflation.
The worst offender was the QSR leader: McDonald’s. According to FinanceBuzz, the Golden Arches hiked prices by 100 percent during the decade-long observation period. The fixtures of the so-called dollar menu in 2014—the McDouble cheeseburger and McChicken sandwich—cost about 3 dollars in 2024.
Experts quoted by FinanceBuzz suggested QSRs are dealing with the economy-wide trend of rising labor costs and are taking advantage of consumers’ willingness to patronize their restaurants even if the price is higher than usual. However, those same sources suggested the QSR industry is reaching a tipping point since its price increases risk pushing away its core consumer base.
The FinanceBuzz report apparently drew the attention of the Chicago-based McDonald’s Corp. In May 2024, Joe Erlinger, President of McDonald’s USA, published an open letter, saying it aimed to provide facts.
“Inflationary pressures have affected all sectors of the economy, including ours. Our franchisees (who own and operate more than 95 percent of all restaurants in the U.S.) set menu prices for their restaurants, which account for the increased costs of running their businesses,” Erlinger wrote. “In doing so, they work hard to minimize the impact of price increases.”
Nevertheless, national polling data indicates Americans no longer view Mickey D’s as a “convenient, affordable meal for the whole family,” as Erlinger said in his letter. Most now see it as a “luxury.”
In May, LendingTree Inc., an online marketplace for loans and financial services, published a survey it conducted that determined “78 percent of consumers view fast food as a luxury because it’s become increasingly expensive.”
The LendingTree survey observed that 69 percent of the 2,000 Americans it polled who are making less than $30,000 a year said they are cutting back on eating out because of high prices.
In its most recent earnings call in October, McDonald’s President and CEO Chris Kempczinski didn’t mince words.
“On our last call, we shared that the QSR sector had meaningfully slowed in many of our markets with industry traffic declines in several major markets and that consumers, especially those in the low-income category, were choosing to eat at home more often. This trend continued in the third quarter,” Kempczinski said. “While we anticipated a challenging environment in 2024, our performance so far this year has fallen short of our expectations.”
Kempczinski went on to say that “value” has always been fundamental to McDonald’s brand and its long-term success as a company. But, he said, “our value leadership gap has shrunk.” This is pushing the company to move “with urgency” to either cut its menu prices or expand its promotions in order to provide more value to consumers.
Consumers Dining Out Less
QSRs weren’t alone in facing a challenging environment in 2024. Operators of so-called casual dining restaurants faced similar pressures from inflation-weary consumers. In 2024, the operators of the chain restaurants Red Lobster, Buca di Beppo, and TGI Fridays all filed for Chapter 11 bankruptcy protection.In February 2024, the National Restaurant Association (NRA) said in its “State of the Restaurant Industry 2024” report that 38 percent of its member restaurants were not profitable in 2023. The same report said nearly all of the NRA’s membership reported dealing with elevated costs for both food and labor as a contributing factor to their financial struggles.
Representatives of the NRA, a Washington-based advocacy organization representing the restaurant industry, did not immediately respond to The Epoch Times’ request for comment.
Also in February, Revenue Management Solutions (RMS) LLC—a consultancy focused on aiding restaurant profitability—published a report with several disturbing conclusions for restaurant operators. According to its report, “Dining Dynamics in 2024: The Shifting Landscape of Consumer Tastes,” Americans are eating out less often and spending less at restaurants.
According to RMS’s report, traffic at fast-casual and full-service restaurants is declining much faster than at QSRs. Consumers surveyed by RMS also said they perceive eating at home to be a better use of their money than eating away from home.
Value Is Driving Performance
Despite these trends, most of the largest, publicly traded operators of chain restaurants are doing better financially than they were at this point in 2023.According to their most recent U.S. Securities and Exchange Commission (SEC) filings, Darden Restaurants Inc., Brinker International Inc., and Texas Roadhouse Inc. all saw their profit increase compared with the prior year.
Darden Restaurants, which owns and operates more than 2,000 restaurants in the United States and Canada, saw its net earnings grow to about $1.02 billion in its fiscal 2024 from about $982 million in its fiscal 2023, according to its annual report published on July 19, 2024. Its family of restaurants include Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, Ruth’s Chris Steak House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s Prime Seafood, and The Capital Burger.
The Orlando, Florida-based company’s latest quarterly report, published on Sept. 27, 2024, suggested the trend was continuing into its fiscal 2025. That report showed Darden’s net earnings grew to $207.2 million in the first quarter of its fiscal 2025 from $194.5 million in the first quarter of its fiscal 2024.
Texas Roadhouse, which operates the casual steakhouse chain, Bubba’s 33, and Jaggers, owns and operates about 650 restaurants, according to its latest financial statement filed with the SEC.
The same quarterly report, published on Nov. 1, 2024, said the Louisville, Kentucky-based company grew its net income—or profit—to about $317.8 million through the first three quarters of 2024 from $232.4 million through the same period of 2023.
Brinker International Inc. owns, operates, or has franchised about 1,600 restaurants operating under the brands Chili’s Grill & Bar and Maggiano’s Little Italy. According to its latest SEC filing, Brinker saw its net income rise to about $155 million in fiscal 2024 from about $103 million in fiscal 2023.
The Dallas-based company’s latest quarterly earnings report, filed on Oct. 30, 2024, said the company’s net income rose significantly during the first quarter of its fiscal 2024 to $38.5 million from $7.2 million in the same portion of the previous year.
The only major restaurant operator to lose money within the past year was Dine Brands Global Inc. Dine Brands franchises about 3,500 restaurants in the United States and around the world under the Applebee’s, IHOP, and Fuzzy’s Taco Shop brands.
In its latest earnings report, published on Nov. 6, 2024, the Pasadena, California-based company said its net income, or profit, had decreased to $59.7 million in 2024 from $64.1 million in 2023 over the first nine months of the year.
In earnings calls, executives at Darden and Brinker attributed their success to lower menu pricing.
In the company’s fourth-quarter earnings call, held on June 20, 2023, Darden’s Senior Vice President and CFO Raj Vennam said the company saw its same-restaurant guest traffic outperform the rest of the industry thanks to “lower levels of pricing relative to the industry.”
Kevin Hochman, CEO of Brinker, said his company’s improved performance at its Chili’s establishments is due to investing in additional labor at its restaurants, cutting the size of its menu by a quarter to focus on its most popular items, and strong marketing of its cheapest meals. He highlighted a $10.99 offer—chips and salsa, burger and fries, and soft drink—and said that promotion is “tough for competitors to match.” Hochman said Brinker is making similar moves at its Maggiano’s restaurants.
In its latest earnings call, Dine Brands CEO John Peyton said both Applebee’s and IHOP experienced declining same-store sales during the quarter, compared with the same period of the prior year. He said some of that was due to higher-than-usual traffic during all-you-can-eat promotions hosted at both Applebee’s and IHOP in the previous year.
Peyton said his company’s promotions at IHOP, with meals as inexpensive as $6 or $7, and Applebee’s, with a $9.99 meal, will deliver results soon.
“Value will remain our focus for the rest of the year,” Peyton said.
