$1.99 Sonic Boom Shakes Up Value Meal Wars

McDonald's started it with a $5 value meal, quickly followed by Burger King and Taco Bell. Now Sonic has jumped into the fray, lowering the ceiling to $1.99 in the hope of luring in new customers with a funky name and getting them to buy pricier, more profitable offerings along with the deal items.

The name of the game is foot traffic. Placer.ai's monthly analysis shows foot traffic at QSR's has flattened since January when it was more than 20% higher than November. Last month's report showed barely more than a 2% rise from May.

Can the deals work and create new, loyal customers without damaging profits? Experts contacted by The Food Institute had their doubts, saying the increased traffic likely won't last.

"It's important to remember that real customer loyalty often depends on consistent quality, service, and doing everything in your power to keep the customer happy and satisfied, beyond just the deal itself," said Ira Prevalova, marketing director at Adverity.

Andrew Dickow, national food and beverage leader at Greenwich Capital Group, said the traffic spikes produced by value meals "often do not foster long-term loyalty" and don't do much to improve the bottom line, despite add-ons and upgrades. He opined:

"In an environment where almost all fast-food chains are launching new value menus, these ‘loss leader' offerings seem unlikely to drive additional market share."

"Franchisees must balance the benefits of increased traffic with the potential financial strain to ensure sustainable profitability," Dickow added.

Applebee's added a new wrinkle to the value wars, announcing a 50-cent mozzarella stick deal. The deal runs through July 28.

Sonic said its Fun.99 menu will be a permanent addition. It features such items as cheeseburgers and wraps, along with tots and shakes, but unlike its competitors' meal deal, Sonic's menu is $1.99 per item. McDonald's $5 value meal includes a sandwich, fries, chicken nuggets and a drink.

"Many restaurant brands are touting value meals and discounts, and you see a lot of recycled ideas with limited options," Sonic CMO Ryan Dickerson said in a press release. "At Sonic, we wanted to do something different – something fun – so, we focused on variety."

The Bureau of Labor Statistics reported fast-food prices are up 4.8% from last year, compared with 3.3% inflation overall. In the past decade, fast-food inflation was 47%, compared with 33% overall.

One of the consequences of that jump in prices is that full-service restaurants became more competitive, Izzy Kharasch, president of Hospitality Works, told FI.

"Getting the customer in the door through the value meal is the easy part – turning them into loyal customers is where the work begins," Kharasch said, predicting fast-food restaurants "will sacrifice high profits for quite a while in order to bring in those customers who strayed into other restaurant categories because the pricing became so competitive." Food Institute Focus

The Secrets to Winning Gen Z's Dining Dollars: Trust, Value, and Social Media

Building trust is imperative when attempting to win over Gen Z consumers – and that notion was reinforced by a recently-released study.

The research shared by Deliverect – a global food tech SaaS company – and Censuswide revealed that 93% of Gen Zers value food recommendations from friends and family over social media influencers.

Deliverect noted that "trust is an incredibly valuable metric for Gen Z; they want to feel confident in the advice they receive, whether from friends, family, or their favorite food-influencer."

The study detailed the sentiments of more than 3,500 Gen Z consumers (18 to 27 years old) in the U.S. and UK.

"Gen Z presents a unique, yet vital, opportunity for restaurants," Deliverect CEO Zhong Xu said in a statement.

"Building trust and offering delicious food at a fair price is the recipe for success with this generation."

While Gen Zers trust those close to them the most for food recommendations, social media is slightly more influential for discovering new places to eat (48%, versus 44% for friends and family). TikTok is particularly influential, with 70% of young adults considering it the most valuable source for recommendations, followed by Instagram (65%).

Deliverect also revealed that 73% of Gen Zers consider themselves foodies.

Cost-conscious Mindset

Cost is a critical factor in Gen Zers' dining choices; 42% of that cohort cited value as a key reason for returning to a restaurant. In fact, for these young consumers, cost consistently comes before other important factors such as service, location, and cuisine type.

Other top spending priorities for Gen Z include:

- Groceries (38%)

-  Car payments (22%)

-  Clothes shopping (26%)

-  Social activities (19%)

Deliverect also reported that, regardless of their situation in life, many Gen Zers are homebodies. Consider: 42% of respondents said they prefer to order in rather than go out to eat on a Friday night, a potential carryover habit from the Covid-19 pandemic.

"Leveraging the power of user-generated content, and catering to (Gen Z consumers') desire for convenience," Xu said, "are core principles that will help restaurants remain a top spending priority for Gen Z." Food Institute Focus

Analysis: Why Has Adoption of AI Been So Slow in F&B?

Some of the greatest minds in human history – late, great physicist Stephen Hawking among them – have predicted that artificial intelligence will offer mankind immeasurable benefits.

So far, though, AI has yet to leave an indelible imprint on the food and beverage industry. Yes, some major chains, like Domino's, have successfully used AI for personalized recommendations within their app. However, other major players, like McDonald's, have also scrapped major initiatives related to AI, like the burger chain's partnership with IBM for automated order taking.

"Most customers can feel frustrated when interacting with chatbots and automated customer service systems. And sometimes inquiries aren't straightforward, and those inquiries aren't easily managed by a machine," said Stefania Barbaglio, CEO at Cassiopeia Services.

The CEO recalled customers' discomfort with AI implementation at Amazon Go stores.

"If businesses can prioritize data security and ensure that AI enhances rather than replaces human interactions, then I think AI can be more accepted," Barbaglio told The Food Institute.

Yes, AI usage has been hit or miss among many companies. Yet, retailers that have been transparent about their AI usage, like beauty brand Sephora (with its virtual artist tool), have seen higher customer acceptance.

Are food manufacturers, grocers, and restaurants destined to find their footing as it relates to AI? Most experts say: "Yes. ... Eventually."

"For restaurants, AI can be very valuable for inventory management, and to predict customer preferences and enhance personalized marketing," Barbaglio said.

Grocers can use AI to improve supply-chain efficiency, reducing food waste through better demand forecasting. One noteworthy retail success story related to this new technology: Divert partnered with grocery chains like Safeway to use AI (along with reverse logistics, and RFID tracking) in an effort to identify food recovery opportunities. Over the span of 3 months, Divert helped Safeway stores reduce edible food going to waste by an average of 1,252 pounds per store per month.

Food manufacturers, meanwhile, are already using AI, for initiatives like optimizing production processes.

"AI-driven quality control systems can detect defects or contamination in products much better than humans," Barbaglio said, "and that's a big enhancement of food safety."

Yes, implementing AI requires major investments from companies. But many business leaders feel the technology can make a major – and positive – impact.

Mark Abraham, managing director and senior partner at Boston Consulting Group, is among the believers. So much so, in fact, that he co-authored the forthcoming book, Customer Strategy in the Age of AI, along with Harvard Business School lecturer David C. Edelman. Abraham told FI that AI can offer several invaluable uses to food companies, such as:

-  Personalized offers

-  Mobile order recommendations

-  Sales forecasting

-  Inventory/ordering

-  Online ordering substitutions

-  Store manager virtual assistants

-  Auto-scheduling

With all those potential use-cases, it's hard not to wonder: Why hasn't the F&B industry embraced AI completely? Why have there been so many "misses" and so few "hits"?

Recalling a recent swing and miss related to AI, FI guest columnist Dan Rowe noted that restaurant chains using AI in their drive-thru process have struggled with inaccuracies. For one thing, the technology struggles to recognize some customers' accents.

"As a result, the current version of the technology isn't solving speed for labor, and it's making restaurants lose check average," said Rowe, the CEO of Fransmart. "QSRs aren't removing any employees from the drive-thru process because, right now, they need an employee to fix and troubleshoot automated order-taking."

But, Rowe noted, "technology always has a version 2, and a version 3." Thus, he still believes in the promise offered by utilizing AI in drive-thrus.

"My prediction is that we will see this kind of application being perfected in the next 18 to 24 months, as numerous chains are testing it," Abraham said. "The industry continues to learn and adapt from these experiences." Food Institute Focus

Store News:

Pizza Hut is warring with one of its largest franchises. EYM Pizza, an operator in Indiana, closed 15 locations amid a lawsuit from the pizza chain franchisor over unpaid royalties and poor performance, reported Restaurant Business (June 18). Full Story

Chipotle Mexican Grill has introduced "Chipotle Boy" Bowls in a nod toward male finance professionals. The fast-food chain posted an announcement on X to kick things off, including images that make up the "Chipotle Boy Starter Pack," reported RetailWire (June 19). Full Story

Meanwhile, Chipotle Mexican Grill CFO Jack Hartung will retire in March 2025, with Adam Rymer set to take on the roll, reported The Wall Street Journal (July 9). Full Story

Subway recently added Footlong Dippers to its menu. The chain introduced the Dippers to its Sidekicks menu. The melted cheese and meat-wrapped Dippers are priced at $3 each and are available nationwide, reported Restaurant Business (June 18). Full Story

Red Lobster is still reeling from a bad real estate deal. According to multiple industry experts, Red Lobster's real estate issues began in 2014 when the chain's owner sold its real estate in a sale-leaseback, putting the seafood brand on the hook for millions in rent. Its recent filing for Chapter 11 bankruptcy doesn't help, reported Restaurant Dive (June 10). Full Story

Perkins is changing. The 66-year-old family-dining chain will now be known as Perkins American Food Co. and is spinning off a fast-casual restaurant. The smaller-format fast-casual will be a 1,500-sq.-ft. take on the concept with 70 seats, feature breakfast staples like pancakes and waffles, and new handheld items for lunch. The prototype will launch in Canada this year, reported Restaurant Business (June 25). Full Story

McDonald's opined that the company's previous U.S. test of plant-based meat didn't work out and its patrons don't go to its restaurants for salads. Joe Erlinger, the chain's U.S. chief, said a test of its McPlant burger in San Francisco and Dallas "was not successful in either market," reported Bloomberg (June 26). Full Story

Cava's post-IPO rise values the Mediterranean restaurant chain at a searing $33 million per location. Cava's shares have risen 300% since its public debut last June. The chain is currently valued north of $10 billion by market cap, reported Quartz (June 17). Full Story

Popeye's rolled out its version of boneless wings nationwide beginning with celebrity endorsement from comedian and actor Jimmy O. Yang. The new offering arrives in six signature flavors: classic, honey lemon pepper, signature hot, honey BBQ, sweet 'n spicy, and roasted garlic parmesan. Full Story

Meanwhile, Popeyes' parent company, Restaurant Brands International, is buying the brand's China operation. The $45 million investment will jumpstart growth in China despite high prices and consumer pushback on cheaper brands or menu items, reported Restaurant Business (July 1). Full Story

The swicy trend is sizzling with Dunkin's new Mike's Hot Honey sandwiches, wraps, and snackin' bacon. The hot honey seasoned bacon—infused with chili peppers—is the chain's first seasoned bacon since 2019, reported yahoo! (June 26). Full Story

Now that the $5 McDonald's value meal is active, the ongoing fast-food value wars are in full swing. Overall guest traffic at drive-thrus and sit-down eateries is down 3.3% year-over-year, and most restaurants are leaning on loyalty programs through their apps to drive traffic, reported The Wall Street Journal (July 1). Full Story

Panera is launching a line of sweet and savory breakfast entrees. Alongside new savory items—like bacon-and-egg or steak-and-egg sandwiches—Panera now has breakfast sandwiches made with its fan-favorite cinnamon rolls, reported All Recipes (June 29). Full Story

Sonic announced Monday the debut of its new $1.99 value menu, becoming the latest fast-food chain to offer customers a value menu or value meal. Sonic says the value menu, nicknamed the Fun.99 menu, will be a permanent addition to its overall menu, reported USA Today (July 1). Full Story

MOD Pizza has been acquired by Southern California-based Elite Restaurant Group. In a deal that aims to help it avoid bankruptcy, the fast-casual pizza chain has agreed to sell 100% of its equity to a group that has owned multiple pizza brands, reported Restaurant Business (July 10). Full Story

Olive Garden parent Darden Restaurants is buying Chuy's for $605 million. It will be the second acquisition for Darden in as many years and brings Mexican cuisine to its portfolio for the first time, reported Restaurant Business (July 17). Full Story

Avian Influenza Continues to Spread Across America

BUFFALO, N.Y. – HPAI, commonly known as avian influenza, is spreading across dairy farms and, at last report, was present in 143 herds, with 53 new herd infections over the past month, according to Dr. Sam Alcane, associate professor, food science at Cornell University. Alcane presented the latest on HPAI and dairy at a "Hot Topics" session at the American Cheese Society Conference that wrapped on July 13.

Avian influenza outbreaks have been detected in 13 states, according to the Centers for Disease Control (CDC). "And the outbreak is probably more widespread," Alcane said, citing a lack of on-farm testing.

To get a more complete analysis, the USDA is providing incentives for farmers to test herds, including veterinary fees and reimbursement for infected milk. There are more than 27,000 dairy herds in the U.S.

One key bird flu concern: the virus settles in the mammary glands and is shed in milk, according to studies in mice. In late April, FDA collected and tested 275 bulk samples of raw milk collected from farms in four states where herds had tested positive. Half of those samples were positive for traces of influenza.

One-quarter of those aforementioned positive samples also proved to be infectious, meaning the avian influenza grew when it was inoculated into fertilized chicken eggs.

All beef in infected cows has tested negative. Four dairy farm workers have contracted the virus; all had mild flu-like systems.

Retail testing of 297 samples of pasteurized milk and other pasteurized products showed no evidence of the virus, supporting FDA's contention that pasteurization kills the virus and that all pasteurized products are safe.

FDA is currently sampling 155 additional products gathered at retail. The agency continues to strongly advise against consumption of raw milk products.

"We do not know if time and temperature deactivate the virus in raw milk products," said Alcane. Food Institute Focus

April Restaurant Sales Increase 0.6% in April

April restaurant sales increased by 0.6% in April when compared to the prior year, according to GuestXM by Black Box Intelligence. Comparable traffic was down 2.3% during the period. The best performing region was the Midwest, while quick service took top marks for segments and chicken was the month's top cuisine. Full Story