Restaurants vie for low-price diners

Published: Tuesday, January 3, 2006 at 6:01 a.m.
Last Modified: Monday, January 2, 2006 at 10:15 p.m.
Friends Alan Cintas and Sean Dallura sat down at a Del Taco recently for a typical midday meal - three tacos, nachos, a cheeseburger, chili fries and a chicken quesadilla between them.
The 19-year-olds are hungry and busy, juggling classes at Saddleback College, sports and jobs. They eat fast food nearly every day. And they can recite by heart the cheap eats at most fast-food chains.
"For $3.52 at Wendy's I can get a junior bacon cheeseburger, chicken nuggets and medium fries - then I just grab a drink at home," Dallura said.
To keep customers like Cintas and Dallura happy, some fast-food chains are creating, upgrading or tweaking value menus after years of focusing on fancier fare to compete with fast-casual restaurants, which were luring away customers with more upscale food.
Now, fast-food companies, which periodically engage in price wars, want to remind diners that they are still the best place to buy a lot of food for a little money.
But there is a risk to that strategy because too much price-cutting can hurt profits, analysts say.
In Orange County, Calif., and Southern California, Burger King is testing a value menu with several items for $1 including a Whopper Jr., chicken tenders and small fries. Grilled-chicken chain El Pollo Loco, based in Irvine, Calif., introduced a dollar menu for the first time this year. And Taco Bell refocused its bargain menu in 2004 with prices ranging from 99 cents to $1.29.
Many fast-food restaurants want to appeal to a wide-range of customers with both premium and low-priced menu items.
Taco Bell, also in Irvine, appears to have been successful in targeting different consumers with its Big Bell Value Menu and new, more expensive dishes with chicken and steak. While the demographics of the two groups of customers are generally the same - men 16 to 49 - one group is motivated by price, while others are more focused on taste, portability and convenience, said Bill Pearce, chief marketing officer of Taco Bell, which revolutionized the low-cost menu in the late 1980s with 59-cent tacos.
Most of Taco Bell's advertising dollars promote more expensive new products such as the "chipotle grilled stuft burrito" ($2.99), which the company is advertising on television and radio. But in restaurants, the Big Bell Value Menu is prominently featured, making it easy to pick out the cheap food.
"For our value customer we wanted to create a safe haven so that every time they come in, that menu will be there," Pearce said.
Some believe fast-food companies are dusting off low-priced menus after several years of focusing on more upscale products to stave off competition from fast-casual restaurants Panera Bread, Chipotle and others, which have grown rapidly in the past five years.
Now that fast-food chains have wooed some customers back with premium products, they want hungry young men to know they still have cheap eats, said Bob Sandelman, president of Sandelman & Associates in San Clemente, Calif., a market research firm for the restaurant industry.
"They are refocusing and reminding people they can still get a good value," Sandelman said.
But others say the risks of a low-priced menu are greater than the rewards - especially if chains discount core products. Instead of ordering a signature burger for $3.50, for example, a customer might fill up on a pair of one-dollar burgers instead. In 2002, Burger King and McDonald's hurt the bottom line by engaging in a price war.
"You run the risk of customers trading down, which drives down check averages and hurts profits," said Ron Paul, president of restaurant consulting firm Technomic Inc. of Chicago.
Wendy's tried to boost the profitability of its 99-cent menu this summer by raising the price of the Jr. bacon cheeseburger to $1.29 and adding a few other items above the 99-cent price point. The move reportedly was not well-received, according to a stock analyst.
A Wendy's spokesman said the company continues to evaluate its entire menu and would not speculate on changes that may be coming in the future because of competitive concerns.
Some chains try to stay out of the cost-cutting competition, however.
Carl's Jr., discounts as little as possible, said Brad Haley, executive vice president of marketing. The company sells only two 99-cent items - the spicy chicken sandwich and the big hamburger.
"We want to be about premium quality and premium prices," Haley said.
As a result, only the spicy chicken sandwich is on the menu - and one practically needs a magnifying glass to find it.
Andy Nikolenki, 18, of Lake Forest, Calif. appreciates the bargain prices at fast-food chains.
"It helps, because sometimes you don't have a lot of money," he said.

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