Fast, cheap and within a budget
Restaurant chains offer low-priced fare to woo back diners.
After a second quarter of too many empty tables and falling profits, big restaurant chains are planning to woo diners back with lower-priced dishes as the weather grows colder.
But consumers will not see discounts across the board, since many chains have either already raised prices on select items such as steak or are planning to do so in the next few months to cover still-high costs for food, energy and labor.
Boston Market Corp., for example, first offered five of its most popular meals for $4.99 in July. Seven other menu items were lowered to about $5 in August. The meals regularly cost closer to $7.
But other items, including the chain's roasted sirloin, have become more expensive in the last year. Boston Market raised prices on several of its menu offerings earlier in the year - a strategy Proctor said had given the chain some "balance" against high operating costs.
Burger King Holdings Inc., meanwhile, added two items last week to its value menu - the Cheesy Bacon BK Wrapper and the Spicy Chicken BK Wrapper - for $1.39.
Just weeks earlier, though, chief executive officer John Chidsey told investors that the chain would likely increase its menu prices to offset a 5 percent to 7 percent rise in food costs during this fiscal year, which started in August.
Fast-food restaurants and casual-dining chains have been increasing prices steadily for the last year, largely to combat higher costs for food caused by soaring grain prices that have trickled through the food chain.
Menu prices in July were on average 4.2 percent higher than they were a year ago, according to Hudson Riehle, senior vice president of research and information services at the National Restaurant Association.
Raising menu prices can be an especially tricky move because the restaurant business relies largely on the amount of cash in consumers' bank accounts. If diners have less money to spend or if they perceive that it could cost more than usual to eat out, they typically head to the grocery store instead.
"Consumers are really sensitive to menu price inflation," Riehle said.
With spending on the decline and prices higher than they were a year ago, restaurant companies - particularly casual-dining chains - have had a hard time persuading customers to walk through the door.
Ruby Tuesday Inc. reported its same-store sales, or sales at locations open at least a year, at company-owned restaurants plummeted more than 10 percent in the April-to-June quarter. Same-store sales at company-owned locations tumbled 7.1 percent at Ruth's Hospitality Group Inc., which operates the Ruth's Chris Steakhouse chain.
Even if chains were able to increase sales in the last quarter, the high costs of food, energy and labor cut into margins and hurt profits. Brinker International Inc. reported a rise in sales at its Chili's Grill & Bar chain - but its profit slid 49 percent because of the spike in costs.
Lynne Collier, senior restaurant analyst at KeyBanc Capital Markets Inc., said that until gasoline prices drop and the housing market strengthens, most restaurants probably will not see much of a recovery in profit, but the emphasis on value could help reverse the sales slide somewhat.
"At least it physically gets more people through the door," she said.