Beef prices soar, but fast-food chains are rushing to offer discounts and promotions

McDonald’s, Burger King, and other brands are heavily promoting sales, while beef prices have hit a record high.

Despite the significant rise in beef costs (industry-wide ground beef wholesale prices have increased by 48% over the past 12 months), fast-food chains are still offering discounts on burger products.

Profit margins for major American burger chains are under pressure, but they continue to cut prices.

Federal data shows that fast-food brands are struggling with soaring beef costs, with industry-wide ground beef wholesale prices rising by 48% over the past year. Market research firm Circana reports that, today, the proportion of Americans choosing value meals when dining out has reached a 50-year high.

The increase in discounts combined with high costs will further squeeze corporate profit margins. Last year, Burger King’s average profit per store in the U.S. declined by about 10%. Jack in the Box announced last month that rising beef costs and weak sales have hurt franchisee profits.

“With better options available, I will never spend over $15 on a burger meal again,” said Josh Furups, a wealth manager in Vancouver, Washington. The 28-year-old said he always looks for deals on the McDonald’s app or chooses Wendy’s value meals when eating fast food.

As ranchers have reduced their herds to the lowest levels in 75 years and have no short-term plans to expand livestock, beef prices are expected to remain high.

Starting in 2024, customer traffic at fast-food outlets has begun to decline, forcing brands like McDonald’s, Taco Bell, and Burger King to increase discounts. Market research firm Technomic reports that last year, U.S. burger chains launched about 3,000 promotional events, nearly three times the number in 2019.

This year, their efforts are even greater. According to insiders, McDonald’s will launch new deals next month, including a new $3 or less menu featuring double cheeseburgers, fries, or hash browns. This marks the fourth nationwide update of value meals in about 21 months.

McDonald’s CFO Ian Borden said in a February interview, “We will do everything we can to provide value to consumers while ensuring business profitability.”

According to the National Restaurant Association, the overall profit margin for the fast-food industry was 4% last year, impacted by rising labor and other costs, down from 6.6% in 2016.

Jim Lewis, who has 32 years of experience as a McDonald’s franchisee and retired in 2019, believes that McDonald’s stores are likely to remain stable due to high sales volume; however, discount wars will worsen profitability for other chains.

“Leading brands can sustain it, but the entire burger category is under significant pressure,” Lewis said.

A Burger King spokesperson stated that the brand will continue current promotions: two items for $5, three for $7, aiming to offer flexible choices among burgers, snacks, and desserts. “We are confident in the current results and their role on the menu.”

The company says that new marketing efforts and store renovations are helping franchisees improve profitability in a tough environment.

Ryan Osterholm, Chief Customer and Digital Officer at Jack in the Box, said the brand will introduce new deals at the right time, “rather than blindly following competitors.” Wendy’s and Jack in the Box both stated they will use technology investments and operational improvements to protect franchisee profits.

Over the past year, McDonald’s stock has risen by 0.9%, while parent company Restaurant Brands International has increased about 9%. Shake Shack fell 1.8%, Wendy’s plunged 53.8%, and Jack in the Box dropped 64.4%.

Greg Creed, former CEO of Yum! Brands (KFC, Taco Bell), said that for discounts to be effective, they must attract more customers while maintaining store profitability.

“The future of the brand depends on the franchisees’ financial health, not the franchisor itself,” he said.

Market research firm Revenue Management Solutions noted that promotional activities have helped slow the decline in customer traffic, but the most strained consumers have not fully returned. Technomic reports that last year, fast-food customer flow gradually narrowed its decline, with December visits increasing year-over-year.

Data from Technomic shows that burger chains still lead the U.S. fast-food industry, with total sales twice that of the second-place fried chicken chains. However, growth in chicken, coffee, and Mexican-style chains is faster.

Food service data firm Datassential indicates that since 2019, the number of burger restaurants in the U.S. has decreased by about 6%. Wendy’s and Jack in the Box plan to close hundreds of locations nationwide.

Executives in the burger category say that even with lower prices, activities like buy-one-get-one-free and $5 meal deals can still generate profits—most U.S. chain restaurants are operated by franchisees.

Former McDonald’s franchisee Lewis, who pushed for a $1 menu during a sales slump in the early 2000s, said that customer flow increased afterward, boosting profits.

“As long as sales go up, we can withstand a lot of pressure.”