Article

The evolution of the value menu

Permanent discount offerings are tricky to balance at already low-price point QSRs.

November 23, 2010 by Alicia Kelso — Editor, QSRWeb.com

The biggest draws to quick-service success are speed, convenience and frugality. It’s a challenge to find other segments that offer a decent-sized, Angus beef burger, french fries and a beverage for about $5.

Perhaps that’s why it’s a bit surprising that most QSRs are now offering diverse value menus that embrace even lower price points.

History

The concept of offering a permanent, separate menu at a cheaper price is about 20 years old. Domestically, Burger King’s value menu was first launched in 1998. McDonald’s got on board with its Dollar Menu in 2003.

Wendy’s was the value menu pioneer, first taking the risk in 1989. According to Denny Lynch, senior vice president of communications at Wendy’s International, the impetus behind its launch was to compete in the burger wars of the late 1980s.

“At that time, all of the hamburger chains were going after each other and it escalated to the point where we were seeing 99 cent Whoppers and Big Macs. These prices were on permanent signage, they weren’t being done as a limited-time promotion,” Lynch said. “From (Wendy’s) perspective, the market share battles were so intense that chains were discounting their flagship items.”

Wendy’s opted out of the discount tug-o-war but was searching for a different strategy to remain competitive. The company came up with something that has stood the test of time and also has inspired many others to follow suit.

“We had the idea of rather than selling one of our big items at 99 cents, creating a whole menu with 99-cent items,” Lynch said.

Wendy’s came up with nine items at that price-point – purposefully including a variety of offerings such as the Junior Hamburger, french fries and drinks. “We wanted our customers to be able to make a full meal with these lower-priced items,” Lynch said.

He admits that at the time, the concept was considered radical by many.

“The environment was intense. If you weren’t doing 99 cents, you were doing heavy couponing. Pizza chains, for example, became so wedded to coupons, it got to the point that consumers didn’t need to pay full price, they just had to wait a few days for the coupons to come out,” Lynch said.

Wendy’s also opted out of this strategy, citing costs to print and publish coupons. The company’s discounted menu began as the “Value Menu” and then the “Super Value Menu.” Those didn’t stick, but the “99 Cent Menu” hit a chord with the Wendy’s faithful.

“We didn’t change it to the 99 Cent Menu, our consumers did. Today, we call it the Everyday Value Menu,” Lynch said. Wendy’s has embraced its fans’ lead, recently launching a national advertising campaign for its 99 Cents Everyday Value Menu.  

Evolution

Wendy’s discounted menu has changed a bit since that initial launch: It now features seven items, five of which were included on the original menu from 1989, albeit some with different names. The modern-day Double Stack is the original Junior Cheeseburger, for example.
                    
Burger King’s lineup also has been tweaked, including its most recent addition in April, the Buck Double. According to Lauren Kuzniar, a spokesperson for the company, the biggest change to the BK Value Menu came in 2007, when the BK Breakfast Value Menu was introduced.

“It was the first national breakfast value menu available at a quick-service restaurant,” Kuzniar said. Earlier this year, McDonald’s also added the breakfast daypart to its Dollar Menu. Additionally, the Golden Arches removed the Double Cheeseburger and added the McDouble.

“Offering breakfast as part of our Dollar Menu is just another way to meet the needs of our consumers and to provide value across all dayparts. When we added the menu, we were responding to what our customers asked for,” said Ashlee Yingling, media relations, McDonald’s USA.

Item swaps and breakfast offerings aside, the biggest difference between the value menu of today and its initial introduction 20 years ago is the exponential increase of willing participants. Now, it seems as though every QSR has some sort of permanent discounted menu.

For example, just last month, A&W launched its first branded permanent value meal, the $3 Big Taste Meals. The choices include three made-to-order burgers and a Coney cheese dog served with fries.

TacoTime also jumped on the value menu bandwagon, offering four signature items out of eight choices for $5. QSR giant KFC just launched its first value menu last year.

The thrifty options are certainly not limited to American consumers. Burger King U.K. is planning to roll out its first “Affordability Menu” in January. This is in addition to its King Deal value meal launched in 2009, which is similar to its American counterpart.

Strategy

Naturally, implementing a lower price-point menu requires a meticulous strategy, beyond simply satisfying consumer demand. Marketing plays a big part, as does variety, balance and having the right suppliers in place.

“We don’t have as big of a budget as some of those other places, so there is a critical importance for us to get our message across, and that message is 99 cents,” Lynch said. “That’s why we keep the message consistent around that important 99-cent threshold, as well as the menu’s variety.”

That variety, Lynch adds, is Wendy’s competitive advantage, as its 99 cent menu includes offerings such as a Frosty or a baked potato. However, when setting the pace for value menus, Wendy’s may have inspired others to follow suit, as many chains are now offering a cornucopia of value items. McDonald’s Dollar Menu features the fruit ‘n yogurt parfait or a side salad, for example; Burger King also offers a salad and a Dutch apple pie; and KFC’s value menu includes apple turnovers and toasted wraps.

Having a broad selection means nothing if the value menu isn’t executed properly. That takes a delicate balance, also known as a barbell strategy.

McDonald’s includes the Dollar Menu in its overall marketing plan, offering the message that it is simply part of the chain’s core offerings, along with its premium products such as the Angus burger and McCafe lines. Burger King also follows the barbell idea, Kuzniar said.

“The BK Value Menu is a key component to our barbell menu strategy and ensures that we offer variety and value for the money for our guests,” she said.

Lynch adds that the most important component in making a discounted menu work is by achieving the perfect equilibrium. 

“When we decided to do this, we went with a strategy that provided a variety to allow consumers to make a meal. Also, and importantly, it allowed us to maintain the same price on our flagship items. We didn’t discount our Quarter Pounder, for example, which is really how you execute something like this; you have to have the right, delicate balance for it to be effective,” Lynch said.

Future

With more than 20 years of business, the QSR discount menu seems to be an intriguing, and perhaps improbable, success story – even before the recent recession.

For instance, McDonald’s Dollar Menu prior to the recession made up about 13 to 14 percent of the company’s business. Now, it makes up 11 to 12 percent.

“The Dollar Menu has not caused our customers to trade down. The entire (Dollar) menu has been successful and I think it would be a mistake to attribute it to any economic situation,” Yingling said.

Perhaps one of biggest factors in the concept’s success, then, is its convenience, something consumers won’t stop searching for anytime soon.

“Work hours have changed so dramatically since the ‘80s. Now we’re working 24/7, we’re setting our own hours, we’re taking lunch at 3 p.m., we’re working late night hours,” Lynch said. “Consumers see these value items as a snack, and that perspective, along with the smaller cost and the increase in variety, fits in better with today’s unpredictable schedules and consumer demands.”
 

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