• After reporting declining restaurant sales for this quarter, CEOs are now focusing on value.
• McDonald’s, Burger King and Taco Bell are among the chains that want to win back customers with menu offers.
• Customers are increasingly placing value on things, John Peyton, CEO of Dine Brands, told CNBC.

Restaurant CEOs have become obsessive about using the word “value” when explaining to investors why their sales declined this quarter, while also presenting plans for reviving customer traffic in the coming months.

During McDonald’s quarterly conference call last month, executives mentioned the word “value” nearly 80 times, underscoring the fast-food giant’s top priority.

And McDonald’s is not alone. Other restaurant executives, from Taco Bell owner Yum Brands to pizza chain Papa John’s, also used the word dozens of times in their recent conference calls.

“The word ‘value’ has received a lot of airtime in recent months,” said Josh Kobza, CEO of Burger King’s parent company Restaurant Brands International, on Thursday.

There’s a reason for this emphasis. According to the Bureau of Labor Statistics, prices for eating out have risen 27.2% since June 2019. In response, restaurant traffic has declined and sales have stagnated as consumers spend less money on dining out because they’re no longer convinced it’s a good deal.

Many chains hope to win back customers through discounts and special offers such as the $5 meal deals from McDonald’s, Burger King and Taco Bell.

“In the current economic cycle, consumers are more conscious of their overall budget and are showing a preference for brands that offer compelling value for money,” Papa John’s CFO Ravi Thanawala said in a company conference call on Thursday.

Reputation for value

Many restaurant managers admitted that their chains had deficits.

McDonald’s CEO Chris Kempczinski, for example, said his company’s reputation as a company with a good reputation has suffered recently. In the second quarter, the burger giant reported that its sales at its US stores fell by 0.7 percent compared to the previous year.

“There were also factors within our control that contributed to our weak performance, most notably our execution of value,” Kempczinski said on the company’s July 29 conference call. “For 70 years, McDonald’s has defined the value of our industry, and we are taking meaningful actions around the world to maintain our leadership.”

McDonald’s launched the $5 meal deal just days before the end of the second quarter, but the low-priced menu has attracted low-income consumers and exceeded expectations, executives said. The chain is extending the promotion in most markets through August and is working with franchisees on a longer-term discount strategy.

Unlike McDonald’s and many other restaurants, Chipotle Mexican Grill reported strong sales growth at its stores and rising customer numbers last quarter. But the burrito chain remains focused on value amid criticism from some customers who say the company has reduced portion sizes.

While CEO Brian Niccol denied any plans the company has to make its burrito bowls smaller, he said the chain will reinforce the importance of generous portion sizes among its employees. After all, those generous portion sizes have helped Chipotle earn its reputation as a great value option.

“The good news is that our actions are already being reflected positively in our customers’ reviews and our value proposition remains very strong,” Niccol said on the company’s July 24 conference call.

It’s not just fast food executives who are focused on value.

Dine Brands, which owns Applebee’s and IHOP, is also seeing low-income consumers cut back on spending, CEO John Peyton told CNBC.

Customers making less than $75,000 a year aren’t visiting Dine’s restaurants as often as they used to, and when they do, they’re sticking with the value menu. Both Applebee’s and IHOP reported surprising declines in comparable-store sales this quarter.

“The second half of the year will certainly be tough and a battle for market share for our increasingly price-conscious customers,” Peyton said.

Value for shareholders

Companies aren’t just thinking about delivering value to their customers, they’re also thinking about shareholder value. Restaurant stocks have come under pressure this year as investors become increasingly concerned about the health of the industry. McDonald’s and Restaurant Brands shares are each down 10% year-to-date, while Starbucks shares are down 21%. The S&P 500 is up 11% during that time.

Concerns about the financial health of chains are not limited to sales. They also affect profits, especially when companies tend to discount. While cheap deals may attract customers, they can damage the profitability of restaurants, affecting revenue and damaging the financial health of franchisees.

And the so-called value wars, in which chains try to outdo each other with offers, only add to these concerns as investors fear a race to the bottom.

Those concerns haven’t come to fruition yet, but it’s early days. For now, it looks like the talk of value and discounts is bringing some customers back.

Burger King, for example, was one of the first chains to launch a $5 meal this summer. Sales at its U.S. stores were more or less flat during the same period, but management said the offer was attracting customers. Burger King now plans to offer the offer through October.

When competitors followed suit with their own $5 discount offers, the Restaurant Brands chain saw no noticeable impact on its business.

“The focus on value actually has some positive aspects across the industry,” Restaurant Brands’ Kobza told CNBC. “I think it can improve the value perception of this category among our guests as more and more people talk about the incredible value that our sector offers. I think that really helps everyone.”