The fast-food industry is engaged in a price war, but this time there aren't likely to be any big winners.
The reason: Nearly a third of U.S. consumers want healthier food, not just cheaper food. Discounted Whoppers and Big Macs alone won't do the trick.
For a $660 billion industry that employs 10% of the U.S. workforce, the stakes are high. Not much has worked to generate growth in recent years. Just 99 cents gets you a junior cheeseburger today at Wendy's, which is battling McDonald's and other chains over lower-price menu options. At Dairy Queen, five dollars buys a relative smorgasbord: sandwich, soft drink, fries, and a hot fudge sundae. Meanwhile McDonald's global same-store sales dropped last October for the first time since 2003.
Yet several studies suggest that rampant discounting is not likely to greatly lengthen the drive-through line. The first is a recent Harris study of restaurant patrons. It found that while 90% choose a restaurant based on price, "healthy menu items" are also a top motivator for 58%. The second study comes from the Natural Marketing Institute, which researched and segmented U.S. consumers by their attitudes about the health aspects of food. NMI found that 17% of consumers could be classified as "well-beings," passionate about eating healthier foods and willing to pay more for it. Another 14% are "food actives," who want to eat better but are more price-sensitive. And 21% are "fence sitters," who know they should make healthier choices but are busy and stressed out and need the dining outlet to make it easy for them. Together these three groups make up 52% of restaurant customers, a group too big to ignore.
Restaurants can no longer afford to price-slash their way to growth; they must also find innovative ways to attract these health-conscious customers by giving them what they want. If they don't, they will be missing out on the biggest growth opportunity in decades.
But this doesn't mean dropping their most popular items. They don't need to ban burgers and other high-calorie foods to lure in these customers. Indeed, even the "well-beings" occasionally crave something indulgent. Taco Bell didn't give up on tacos when it introduced its Cantina Bell menu, which along with its bargain-priced Doritos-based tacos helped it outperform its peers last year. Dunkin' Donuts didn't jettison cream-filled donuts when it introduced its highly popular turkey sausage breakfast sandwich, which comes in at under 400 calories. Sbarro's reduced-calorie pizza slice is one of its top sellers, but the chain still offers traditional cheese and pepperoni.
Moreover, consider that past growth engines for the restaurant industry posed little threat to their core menu items. The wildly popular combo meals introduced in the 1980s were just a different way of bundling old products. McDonald's introduced its breakfast menu in 1971 after a Santa Barbara, Calif., franchisee invented the Egg McMuffin. Breakfast eventually became McDonald's second most profitable time slot, topped only by lunchtime, and the new breakfast menu did not compete with the burgers and fries.
Like breakfast foods and combo meals, lower-calorie menu items are the next big wave, and restaurant operators needn't choose between 100% healthy and belt-busting. But they should realize that the 48% of customers who don't care about their eating habits are not growing their businesses anymore. They need to change their menus and marketing to woo the other 52%.
Research by my organization, the Hudson Institute, proves that this is where the growth is. We studied sales growth between 2006 and 2011 at 21 U.S. restaurant chains that collectively account for $102 billion in annual revenue, and we found that those that increased their number of lower-calorie servings also increased same-store sales by 5.5%, while those that decreased the number of lower-calorie servings saw same-store sales decrease by 5.5%.
Healthier food is solidly in fashion, even at the drive-through window, so much so that even Americans' long and torrid love affair with the French fry may be cooling. The Hudson Institute study found that servings of fries dipped by 50 million between 2006 and 2011 at fast-food chains where fries accounted for at least 20% of the menu items sold. Servings of lower-calorie beverages also grew four times as fast as sweetened beverages during that same period. For sure, high-calorie menu staples are a long way from dead, but neither are they growing.
So what should restaurant chains be doing now? Here are three ideas:
- Understand the fast-changing health attitudes of consumers. With few exceptions, mostly in the upscale "well-beings" consumer segment, all consumers have some sensitivity to price. The challenge will be to give them healthier foods at good price points. Just as many environmentally conscious car buyers have shunned hybrids with high sticker prices, health-conscious restaurant patrons won't buy healthier menu items if they feel they are being gouged. The magic bullet is healthier, good-tasting food at a price that makes customers, restaurant chains, and franchisees happy. Subway's combo meals, which have helped propel its growth to the largest restaurant chain by number of stores, are an example of a product with the right formula.
- Adopt stealth health. That means not trumpeting a food's health benefits, which some diners equate with depriving themselves. The short and ignominious history of McDonald's "McLean Deluxe" is an example of how meals labeled as "diet food" can be a disaster. Vibrant flavors, thoughtful presentation, and quality ingredients matter more. They will appeal to the "food actives," who want to eat better but whose willpower is weaker than the well-beings'.
- Market healthier menu items more aggressively. "Lite" offerings were once banished to a sorry corner on the last page of the menu. The healthier menu items deserve a marquee spot. Cheesecake Factory uses gorgeous photography to play up its "Skinnylicious" menu, which features items like lettuce-wrapped Asian chicken and other dishes at under 600 calories. The food looks every bit as mouth-watering as the chain's 2,500-calorie belly-buster meals. Good marketers invest budget and creativity in their growth brands, and healthier options are where the growth lies.
Innovative, attractively priced menu items that give more choices to an increasingly health-conscious restaurant patron are the only way to go. Restaurants won't thrive by discounting high-calorie products that a growing number of consumers wouldn't buy at any price.