Rising costs in the food industry are forcing fast-food companies to come up with incentives to drive consumer traffic, although some deals might not be as good as they appear.
Restaurant chains are reportedly scaling back “value” meals of less than $5 in place of more expensive combination meals to lift sales and drive profits to offset the rising food costs happening across the nation as more places reopen following the coronavirus pandemic.
KFC has dwindled its promotion of “$5 Fill Ups,” a pot pie or chicken dish with a medium drink, chocolate chip cookie, and a biscuit, which was one of its hot items aimed at consumers in 2020. The fast-food chain has since focused on promoting family-size meals amounting to up to $30 per order.
“Value menu items are not really profit drivers. They’re designed to drive traffic,” said BTIG analyst Peter Saleh.
As commodity costs have increased in the highest levels of 2021, franchises discount less to maintain their profitability, according to Credit Suisse analyst Lauren Silberman.
The producer price index for May showed that the prices businesses must pay for poultry and other meats have risen more than 20% since the start of 2021.
Still, data from restaurant and franchise consumer sales are showing trends that their marketing strategies are working effectively. Comparable sales at limited-service restaurants were up by 11.5% in May compared to the same month in 2019, according to Black Box Intelligence.
Greg Duell, the co-owner of a Duff’s Famous Wings restaurant in Buffalo, New York, said on June 14 that the labor shortage across food and animal product industries is a driving factor in rising food costs.
“The chicken wing farms in America, they’re having trouble retaining and recruiting employees,” Duell said. “When that happens, they can’t process the birds fast enough, they have to feed them more, the feed costs have gone up, the birds are getting bigger, and they can’t process and get them out.”
Despite the Federal Reserve’s prediction that high inflation of consumer goods prices will only be “transitory,” the CEO of JPMorgan said he expects to see “higher rates and more inflation, and we’re prepared for that.”
The Washington Examiner contacted Saleh with BTIG but did not immediately receive a response.