Since the beginning of this year, American restaurant giants have been caught in a dilemma of rising costs and weak consumer spending, and are seizing the market through price wars. Many promotions are targeting $5 value meals, with companies like McDonald's, KFC, Taco Bell, and Burger King all launching similar priced meals and offering more discounts on digital platforms.
An analysis by Bloomberg's Businessweek magazine at the beginning of the year predicted that in 2023, same-store sales growth in the entire American restaurant industry would slow down, as high costs and changing eating habits lead many customers to cook at home. A research report by the American business data analysis company Emarketer predicts that in 2024, the frequency of consumers dining out for the whole year is also expected to decrease.
Weak consumer spending is putting operational pressure on restaurant giants. McDonald's second-quarter report for 2024 showed that during the reporting period, McDonald's revenue was $6.49 billion, roughly flat year-on-year; net profit was approximately $2.022 billion, a 12% decrease year-on-year. In addition, McDonald's same-store sales decreased by 1.0% year-on-year, with a 0.7% decrease in the U.S. market and a 1.1% decrease in international operating markets.
McDonald's executives have warned that with the weakening consumer environment, competition for consumers in the restaurant industry will become more intense, and companies will rely on discounts to attract diners.
Restaurant enterprises are lowering prices one after another in an effort to retain customers, and this situation is not only happening in the United States.
In China, consumers are becoming more price-sensitive, with a stronger demand for affordable dining options. A survey by iMedia Research shows that over 40% of Chinese consumers have a budget of less than 20 yuan for Chinese fast food, and 85.2% of people can accept prices not exceeding 30 yuan.
According to Chen Zhi Big Data, as of 2024 Q2, the national average per capita dining expenditure is 39.6 yuan. In the first half of 2024, the proportion of restaurants in the 30-50 yuan and over 120 yuan price ranges is increasing, while the proportion of restaurants in other price ranges is decreasing. The demand for mass-market dining and high-end dining has always existed, while mid-range dining establishments in the 50-120 yuan range are in a difficult situation, choosing to lower prices to survive.
In August, the mid-to-high-end positioned Burger King launched the &#34;Signature Burger Weekly 9.9 yuan&#34; promotion, while earlier, McDonald's had three &#34;10 yuan burger&#34; promotions in the first half of the year; in May of this year, KFC launched a 9.9 yuan burger promotion; at the same time, Pizza Hut introduced the &#34;Pizza Hut Wow Enjoy Store&#34; to compete with Saizeriya, offering pizzas, pasta, fried rice, and snacks priced between 10 yuan and 30 yuan; Starbucks, which has repeatedly stated that it will not participate in the coffee &#34;price war,&#34; has quietly lowered prices through discount promotions, with actual consumption prices now reduced to around 20 yuan, sparking discussions such as &#34;Starbucks is also in a hurry&#34; and &#34;Starbucks is indirectly lowering prices.&#34;
In addition to fast food brands, many hotpot and Chinese cuisine brands are also following suit, trying to attract more customer traffic with high cost-effectiveness. According to public information, this year, Haidilao announced a full-line price reduction for its set meals, with an average price reduction of over 10%; HeFulaoMian announced a price reduction of about 30%; and Jiuliujiu's subsidiary Sōng Huǒguō announced a price reduction system, with &#34;base pot starting from 8 yuan, meat dishes starting from 9.9 yuan.&#34;
In the view of Zhu Danpeng, a food industry analyst in China, whether catering companies are actively or passively lowering prices, it is based on changes in consumer behavior: &#34;Currently, Chinese consumers' consumption mindset and behavior have undergone fundamental changes, and high cost performance has become one of the preferred factors. In order to better meet the core needs of consumers, the industry has made corresponding adjustments at the price level. Overall, the adjustment pace of various brands is appropriate and targeted.&#34;
&#34;However, blindly engaging in price wars may affect the healthy development of the entire industry. In the price war, large catering companies have supply chain advantages and scale advantages, while small and medium-sized enterprises face many survival challenges.&#34;
The &#34;2024 Report on the Capital Road of Chinese Chain Catering Enterprises&#34; released by the China Chain Operation Association pointed out, &#34;In order to respond to consumers' rationality and practicality, catering companies have been lowering prices or promoting sales, with a flurry of activities priced at 9.9 yuan, 8.8 yuan, etc. On one hand, catering companies need to maintain competitiveness through low prices, while on the other hand, they still need to maintain the original quality, quantity, and dining environment. Price competition is driving companies to continuously engage in 'extreme cost performance' internal competition. The catering industry needs to face greater challenges in cash flow and store operations.&#34;

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This year, American restaurant giants such as McDonald's and KFC have been facing rising costs and weak consumer spending, prompting them to engage in price wars to seize market share. Many companies have introduced $5 value meals to attract customers. McDonald's second-quarter report for 2024 showed flat revenue and a 12% decline in net profit. In China, consumers are price-sensitive and tend towards affordable dining options, putting pressure on mid-range restaurant enterprises, which are lowering prices to survive

- In the US, major restaurant chains are facing rising costs and weak consumer spending, leading to a market grab through price wars, focusing on $5 value meals. Companies like McDonald's, KFC, Taco Bell, and Burger King are offering similar deals to attract customers, with discounts also on digital platforms. The industry-wide slowdown in same-store sales growth is predicted for 2023 due to high costs and changing eating habits, pressuring giants like McDonald's, which reported flat revenue but a 12% drop in net profit in Q2 2024.
- Consumer softness is pushing these chains to compete fiercely by lowering prices to retain customers, a trend not limited to the US. In China, heightened price sensitivity is driving demand for budget dining, with many consumers preferring meals under $3 and a shift towards cheaper dining options. The industry is witnessing a surge in mid-range restaurants lowering prices to survive, with various chains offering discounted deals to attract customers and stay competitive.
- The intense price competition, while meeting consumer demands for affordability, may pose challenges for the industry's sustainable growth. Large chains benefit from supply chain and scale advantages, while smaller businesses face survival hurdles in the face of relentless price wars. The industry is navigating a delicate balance between offering competitive prices and maintaining quality, portion sizes, and dining experiences to stay afloat amidst the pricing pressures.

China Finance Online

KFC and McDonald's are both involved in a price war, global restaurant enterprises are facing the pressure of "rising costs and weak consumption"