Why isn’t fast food cheap any more?

Here’s the answer to this week’s reader question.

“What happened to cheap fast food? Remember Toonie Tuesdays? Or even a combo under eight bucks?”

—Clark

Why isn’t fast food cheap in Canada?

By Robert Carter, Food retail strategist, The StratonHunter Group
As told to Rob Csernyik.

Are there any fast food deals any more? A big restaurant industry trend in recent years in Canada is the move away from value-style pricing strategies like KFC’s Toonie Tuesdays or Subway’s $5 foot-longs. I know people aren’t going to like to read this, but Canadians aren’t as price sensitive as U.S. consumers. In Canada, cheap fast food prices don’t always equate to higher sales. Instead, meal deals sometimes lead to concern about food quality. I think fast food companies started recognizing that price-sensitive customers, who represent only about 20% of customers, aren’t brand loyal and move wherever the discount is.

Price can be affected today by menu innovation, in terms of premium quality food. Tim Hortons is a great example. They still have low-ticket items, but they’ve also moved toward offering higher-priced items, which drive up average bills. Some of the product quality improvements are very noticeable compared to menus 15 years ago. This is the Tim Hortons’ version of “premiumization,” the same strategy playing out across other quick-service restaurants. It’s harder to offer discounts on premium products, such as Angus steak subs.

There are also rising input costs. Minimum wages have increased, while inflation since the pandemic has helped push up rents, utility bills and food costs. Coffee is a great example, with green bean coffee prices at historical highs. With restaurant margins already razor thin, all this creates an environment where it makes less sense to discount.

In surveys related to economic uncertainty, people frequently say “I’m going to eat out less often.” But in reality, they don’t. Restaurant use in Canada is among the highest globally—22 million visits daily by Canadians, roughly one visit for every two people. That high usage rate has to do with daily coffees at Tim Hortons—we have more donut shops per capita than any other nation. Also, unlike older generations, younger consumers have grown up on prepared or restaurant meals. No matter what you hear, cooking at home continues to erode. StatCan figures suggest that Canadians are spending less of our food budget on cooking at home, while the amount spent on dining-in, takeout or third-party delivery is now higher than it was pre-pandemic.

Today, average bills for quick-service and full-service, sit-down restaurants are closer than ever. Quick service brands see this as an opportunity: by making menus more premium or upscale, they can steal some customers from full-service restaurants. You see this with some newer so-called “fast casual” brands entering Canada, like Jersey Mike’s or Shake Shack.

There are still bargains to be had but fewer of them. Burger King offered $2 chicken nuggets for a Nugget Day promo, and McDonalds is freezing prices on small coffee and lowering costs on some value meals. But, these brands only get that 20%, deal-seeking customer base, not new, lasting customers willing to pay more.

Rob Csernyik is an award-winning, full-time freelance journalist specializing in business and investigative reporting, as well as long-form features.

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