Fast Food Price Wars: The Ripple Effect on Supermarkets

Supermarkets can capitalize on the opportunity being presented by the fast-food "value" wars with their ability to offer fresher, healthier, and more diverse options. By emphasizing the quality and nutritional benefits of supermarket prepared foods, they can appeal to health-conscious consumers who are apprehensive about fast-food nutrition standards. Its also a great time for supermarkets to enhance their own customer loyalty programs by offering points, discounts, and personalized deals in the prepared food section.

In the fiercely competitive fast-food industry, price wars and value meal offerings have emerged as powerful tools for market penetration and customer retention.

McDonald’s has suffered its first global drop in sales since 2020, as consumers around the world balk at the higher cost of burgers, fries and soft drinks. Comparable sales at the fast-food chain fell 1 per cent year on year in the three months to the end of June, sliding in both international locations and McDonald’s US base. The company’s chief executive said consumers were “more discriminating with their spend” as it published earnings on Monday. While quarterly revenue of $6.49bn was roughly unchanged from a year ago, net profit declined 12 per cent to $2.02bn, missing Wall Street expectations. McDonald’s share price has dipped by 15% since January 1. McDonald’s, known to attracts diners for its relatively affordable food, has also increased prices.

Joe Erlinger, president of McDonald’s USA, said in an open letter in May that the average cost of a Big Mac Meal had risen 27 per cent since 2019, to $9.29 in the US, though he did say the cost of many menu items had been outpaced by inflation. Morgan Stanley, in a preview of McDonald's earnings, said the group’s “reputation for value has appeared diminished” among consumers, saying it needed offers such as $5 meals “to cater to a key customer cohort that has pulled back”.  Now the fast foods wars are in play, once again, as the major players like McDonald's, Burger King, Wendy's, and others are battling relentlessly to capture consumer dollars through aggressive pricing strategies and bundled meal deals.

While this directly impacts their immediate competitors, the ripple effects extend far beyond, significantly influencing the supermarket industry’s prepared foods and to-go meal segments. Supermarkets are no strangers to competition. The rise of e-commerce grocers, direct-to-consumer meal kits, and specialty food stores have already revolutionized the landscape. Supermarket chains have responded by diversifying their offerings, transforming certain sections of their stores into mini food courts with prepared foods and to-go meals that cater to busy consumers seeking convenience. The crossover between supermarket prepared foods and traditional fast food is apparent. Items such as pre-made sandwiches, salads, and rotisserie chickens are direct competitors to fast-food meals.

What supermarkets are now faced with as fast-food giants slash prices and invest in value offerings, supermarkets are forced to reconsider their pricing, marketing, and product strategies to avoid being outflanked. Consumers are incredibly price-sensitive these days; and as Chipotle and Wendy’s come under fire for shrinking their portion sizes this is an opportunity to gain supermarket sales. According to McDonald’s Erlinger, they are seeking to change the media narrative around McDonald’s recent price hikes – and that their new deal is more about "value perception".

Maybe they need more reality vs perception if they are going to get customers back?

Supermarkets can capitalize on their ability to offer fresher, healthier, and more diverse options. By emphasizing the quality and nutritional benefits of their prepared foods, they can appeal to health-conscious consumers who are apprehensive about fast-food nutrition standards. Its also a great time for supermarkets to enhance their own customer loyalty programs by offering points, discounts, and personalized deals in the prepared food section. Supermarkets can adopt promotional tactics similar to fast-food price wars. Bundling prepared foods with additional discounts or offering meal deals that cater to families can provide competitive alternatives. For instance, multi-item discounts, such as a salad, drink, and dessert combo, can directly align with consumer expectations set by fast-food value meals.

And let’s not forget the supermarket secret weapon - the opportunity to create unique in-store experiences that fast-food restaurants can’t replicate. Hosting cooking demonstrations, offering samples, and running tasting events for prepared foods can engage customers and drive prepared food sales.  Fast-food chains and supermarkets are both vying to become the go-to meal solution provider for modern consumers, each leveraging their unique strengths. Supermarkets, who have increased their prepared foods business must innovate to stay relevant amidst these fast-food price wars. It’s time for improved quality and diversity in prepared food offerings. Healthier options, more competitive pricing, and enhanced convenience on everything from where the foods are displayed in store, to a fast separate checkout to the packaging of the food itself can result from this competitive pressure.

The price wars and value meal offerings from fast-food giants compel supermarkets to rethink and refine their prepared food strategies. This competitive dance is set to shape the future of how Americans access and consume convenient meals, driving innovations that benefit the ultimate stakeholder — the consumer.