Fast Food and Fast Casual Restaurants Are in a Discount Battle — and Consumers Are the Ones Winning

Last summer, a photo of a McDonald's Big Mac combo meal went viral – but not for a reason McDonald's liked. Twitter user Sam Learner was shocked that the price board at a Connecticut rest stop listed the cost of a burger, fries, and a drink at $17.59. According to Learner's post, other McDonald's combo meals cost even more. That photo, subsequently described by McDonald's as "misleading," woke many consumers up to the fact that fast food prices have jumped even more dramatically than those at sit-down restaurants. However, it also appears to have stirred the business sense of executives at fast food and fast casual restaurants, who are now clambering to offer deals to consumers. But how long can the price slashing last? 

What's the difference between fast food and fast casual?

Fast food restaurants are those where food is often made in advance and packaged up when it’s ordered (think fries and chicken nuggets). Fast casual restaurant food is often made to order, with counter service and pick-up counters. The government puts fast food and fast casual restaurants under an umbrella called "limited-service restaurants." It says prices for both rose 4.3% in the past year, according to July statistics from the Bureau of Labor Statistics (BLS).  

By comparison, menu prices at full-service restaurants — where diners sit down and a server takes their order — rose 3.9% in the past 12 months. These price increases are all on top of the fact that consumers are also wrestling with higher grocery prices, which have risen 25% since the beginning of the pandemic, according to the Federal Reserve. However, the BLS findings stated that fast food increases are almost four times the cost of food made at home, which rose 1.1% in the past 12 months — making cooking at home all the more attractive to budget-conscious consumers. 

Placer.ai, which tracks retail performance across the economy, says those increases are making fast casual restaurants, which traditionally have been several dollars per meal more expensive than fast food spots, appear to be the better deal for once — and that switch is leading to a vigorous competition that rivals the Fried Chicken Sandwich Wars of 2019.  

Who's winning the battle? 

​​Placer.ai’s latest study of retail activity, which it shared with Food & Wine, shows fast casual places are leading their fast food competitors in attracting business. 

From April through June, fast casual restaurants reported a 3.9% increase in foot traffic. By comparison, visits were up 2.2% at fast food places. Meanwhile, according to Placer.ai, foot traffic at traditional restaurants dropped 1.1% during the second quarter.

However, the increases can be deceiving. Placer.ai says the growth is driven by the opening of more restaurants — especially if you factor in coffee shops and categorize them as fast casual destinations. Higher traffic is also the case at fast food chains like Whataburger, Raising Cane’s, and First Watch, according to Placer.ai. 

So, the big fast food chains, faced with losing customers at one of the busiest times of the year for dining out, have taken action. In recent months, McDonald’s, Taco Bell, Burger King, and Wendy’s have all rolled out limited-time offers, led by McDonald’s $5 value meal, which includes a McDouble or McChicken, four Chicken McNuggets, a small order of fries, and a small fountain drink.

There are even cheaper deals on the McDonald’s app, where users can find an abundance of special offers. Because I primarily cook at home (perhaps, in part, because of just how much better of a deal it is to do so), I hadn’t eaten at a McDonald’s in months, but I downloaded its app in Michigan to see what kind of deals I could get.

On a weekend in July, McDonald’s offered me a choice of a free Big Mac with a minimum $1 purchase, a $1 breakfast sandwich, a $6 meal deal including a double cheeseburger, fries and a drink, $1 medium fries, 25% off any purchase of $5 or more, $1 for any sized soft drink, 30% off any purchase of $5 or more. 

That’s not the only step McD’s has taken. Faced with outrage over rising fast food prices, Joe Erlinger, the president of McDonald’s USA, sent an open letter to American customers called, “Providing meaningful value to our fans, with a side of facts.” 

Calling last year’s Connecticut price an isolated incident, Erlinger contended that the cost of a Big Mac meal nationwide, including a sandwich, fries, and a drink, was $9.29. But he acknowledged McDonald’s prices have undeniably risen. Before the pandemic, the average U.S. Big Mac cost $4.39 in 2019. It now costs $5.29, about 20% more. Medium fries, which cost $2.29 in 2019, are $3.29 now, a 44% increase. (It's also critical to note that pricing is typically set by individual franchise owners, not by McDonald's corporate office, which can account for wild swings in pricing from store to store.) 

Still, even with these deals, unless they tap into a limited-time offer, consumers are likely to pay $10 or more for a fast-food meal, including tax. (According to NetCredit data, the highest prices for fast food are found in Alaska and Hawaii, where ingredients need to be regularly shipped in.) These higher price points have provided a huge opening for fast casual restaurants to come in and take over that consumer need.

Take, for example, the fast casual spot Buffalo Wild Wings, which launched an offer of unlimited boneless wings every Monday and Wednesday for $19.99. In the seven weeks following the offer’s introduction, the Monday visits increased by 45.6%, and Wednesday visits increased by 49.3%, while B-W’s overall traffic chain’s overall foot traffic grew by 8.1%, according to Placer.ai. 

In late April, Chili’s retooled its "3 for Me" menu. As the report notes, its year-over-year visits “have remained consistently higher – and have yet to taper off.”

While Starbucks isn’t always considered fast food or even fast casual, it’s a destination for people deciding whether to spend money away from home. In May, it rolled out a limited-time 50% Friday discount exclusively for app users and saw an immediate response. Friday visits on May 10, when the promotion launched, increased 20% compared to the year-to-date Friday visit average.

There's a bit of danger in offering a deal that's too good. 

Some brands have discovered the danger of giving away things too cheaply. In 2020, the gourmet shop Pret-A-Manger (which is a hybrid between fast food and fast casual because it makes coffee drinks for you like fast casual but has grab-and-go like a fast food chain) introduced Club Pret. For the equivalent of $38 a month at current exchange rates, British customers could snag up to five coffees a day and get 20% off everything else. The chain hoped to boost business at a time when many offices were empty, and employees were working from home. 

According to the Times of London, the plan worked way too well: Pret expected 2,000 signups on the first day and instead got 16,500. Even more joined as people returned to offices. Pret estimates it gave away 1.25 million drinks per day and lost millions of dollars on the plan. Now, club members will pay $12.82 monthly but only get 50% off on five daily coffees, and there are no deals on food.  And, of course, there's the case of Red Lobster, which almost went completely under after its Ultimate Endless Shrimp deal.

But, even with the potential pitfalls, it appears the battle between fast food and fast casual has just begun. 

In the U.S., new names are flooding into the fast-casual market, offering diners even more options and posing more competition for veteran brands. QSR Magazine, which tracks the segment, recently listed its 40 hottest fast-casual startups, which have fewer than 40 locations. They included every type of cuisine, from Vietnamese food to tacos, toast, breakfast spots, bakeries, and barbecue. 

So now, the next time consumers decide, "Let's go out tonight," they'll have a lot more dining destinations to choose from — and may not have to break the bank doing it.