The battle for the price-conscious consumer is always difficult. It is often a scenario of many competitors fighting for sales of low profit margin products. The quick service restaurant category is a prime example of the fight for the value customer. McDonald's, Wendy's, and Burger King have gone toe-to-toe with value menus. Many items on their value menus were priced at $1. Value menus are a tool for luring cash strapped customers or enticing an additional visit.
Now, in the face of rising commodity costs, the value menu is being redefined. Menu items for $1 are no longer realistic in that they are no longer low margin items but in many cases loss leaders. Thus, the frame of reference for what are value prices is shifting upward. Burger King has added two new items to its value menu (Cheesy Bacon BK Wrapper and Spicy Chicken BK Wrapper) at a price of $1.39. It is expected that other brands will have little choice but to follow suit if they intend to continue to market value priced menu items.
As much as consumers may not like this upward resetting of the definition of value price, it is necessary. Value pricing at a loss provides value for only one side in a transaction! Value priced products can be a key part of a product portfolio if they contribute complementary sales yet do not cannibalize sales from higher margin items.
Link: The Wall Street Journal - "Burger King Corp. Provides More Value for Restaurant Guests"