January 18, 2009

Fast-food war breaking out in U.S.

American fast-food chains are going after McDonald's value meal crowd in these recessionary times, food industry analysts say.

A fast-food war is in the making, with Burger King Corp., Wendy's International, Inc., Taco Bell Corp., KFC Corp. and Sonic Corp. all trying to lure customers with more items costing $1 or less, Crain's Chicago Business newspaper reported Sunday.

McDonald's Corp. competitors are ratcheting up the heat after McDonald's raised the price of its double cheeseburger to $1.19 last month, removing the popular item from its Dollar Menu to help boost profit margins. McDonald's Dollar Menu sales were about 14 percent of the company's U.S. revenues last year, Crain's said.

Competitors are trying to attack McDonald's Dollar Menu, said John Owens, an analyst in Chicago with Morningstar Inc. Consumers are strapped for cash, and the fast-food companies with the best value proposition will win over customers in 2009.

Sonic is offering a chicken sandwich, hamburger, breakfast burrito and other items for a buck, while Wendy's is running three 99-cent sandwich specials and Burger King is going after the morning crowd with dollar breakfasts. KFC is expected to get into the act soon with a 99-cent chicken sandwich. Taco Bell is low-balling with an 89-cent cheesy double beef burrito.

The level of promotion of value menus has never been higher, said Larry Miller, an analyst in Atlanta with RBC Capital Markets. We are beginning to have a value menu war.