Fast food chains are locked in a 'value war' for US customers

• Fast food chains say they're locked in a "value war" to win increasingly choosy US customers.
• On earnings calls, brands highlighted ways they're trying to offer more bang for diners' bucks.
• As customers push back on high prices, companies are looking beyond temporary discounts to earn sales.

It's an especially challenging time in the fast food business.

As a flurry of summer deals come to an end, quick-serve chains say they're now locked in a "value war" to win increasingly choosy US customers.

While almost everything is more expensive now than a few years ago, inflation figures show price increases for dining out have outpaced groceries, with the divide widening sharply over the past two years.

More recently, some brands have aimed to soften the sticker shock with temporary discounts to get diners in the door, but rising costs of things like labor and raw ingredients are increasingly squeezing profits.

"Consumers have become more discerning," Moody's Ratings analyst Michael Zuccaro said in a note Friday. "Value perception is a key driver. This is not just price but also experience related factors such as convenience, speed, consistency, and accuracy."

On earnings calls this week, brands such as McDonald's, Starbucks, Wendy's, and others highlighted ways they're trying to offer more bang for their customers' bucks.

Chipotle said Tuesday that its ingredient costs have gone up recently due to a recent emphasis on delivering "consistent and generous portions" in its burritos and bowls after customers complained earlier in the year of feeling short-changed.

Between higher ingredient usage and other costs on the one hand, and a more competitive consumer economy, interim CEO Scott Boatwright said Chipotle was well-positioned to win the "value war" in fast-casual dining.

"The chicken burrito, on average, is still under $10, which we believe is still a 15% to 30% discount compared to our peer group. And so, we'll continue to lean into that as we move forward," he said in the company's call.

Boatwright's predecessor Brian Niccol, who's now CEO at Starbucks, made several critiques of the coffee chain's recent value proposition during the coffee company's Wednesday earnings call, including its "complicated" menu and customization options.

"What I have found is when you get simplification in place on pricing, people understand, OK, this is what I'm paying, and this is what I'm getting. And right now, I think we're surprising people a little bit on what they're paying through the customization process and we've got to fix that," he said.

Even Wingstop CFO Alex Kaleida weighed in.

"We see consumers prioritizing brands that are going to deliver on quality and value," he said Wednesday. "We think we're right in that sweet spot of those guest expectations."

In the world of burgers and fries, McDonald's CEO Chris Kempczinski expressed concern during the company's earnings call Tuesday that "our value leadership gap has shrunk" as other chains bring competitive offers to the marketplace.

"In response, we have moved with urgency in partnership with our franchisees to improve our value offerings in most of our major markets," Kempczinski said.

McDonald's CFO Ian Borden also told analysts on the call that the company is using its $5 meal deal to grow its loyalty program.

"Buyers of the $5 meal are visiting us more frequently," he said on the call, saying that those repeat visitors go on to choose other menu items as well. "That's what you start seeing when you start getting consumers back into the restaurants on a more regular basis."

Even premium burger brand Shake Shack said on Wednesday that its customers have had enough with price hikes, pushing the company to invest more in value.

"Despite the pricing we've taken over the last year, we're one of the few brands to actually improve our value equation over the last year," CEO Robert Lynch said during the company's call. "It does feel like all the initiatives that the team has put in place around service and speed, coupled with the great food that we continue to deliver, is driving a stronger value perception, which is allowing us to continue to grow."

Wendy's rounded out the trend on Thursday with a detailed discussion of its approach to value.

"We're thinking about value," CFO Gunther Plosch said Thursday. "We absolutely believe that value in an environment of value-seeking consumers is not about only executing price-pointed promotions and value deals and value bundles — there's more to that."

Plosch added that beyond the burger chain's creative promotions, the core menu remains essential to getting customers to come back.

"We are working really hard on having that value-seeking consumer having an outstanding experience at the restaurant," he told analysts.

In other words, prices aren't likely to come down, but CEOs and CFOs will be anxious to see that you were satisfied with your order.