A double cheeseburger for $1.99? Why fast-food prices are going even lower.

By Charles Passy

Sonic and Subway have recently launched menu options well below the $5 mark.

So much for $5 value meals. The next frontier in bargain-priced fast food may be the $1.99 double cheeseburger.

In recent weeks, two chains have launched menu options priced well below the $5 mark. Sonic has introduced a slate of $1.99 offerings, which it has dubbed the Fun.99 menu. Options include a Quarter Pound Double Cheeseburger, a Chili Cheese Coney dog, a Queso Wrap, a small order of tater tots and a 16-ounce shake.

Meanwhile, Subway has rolled out its Footlong Dippers, a $3 rolled flatbread that comes in three varieties - pepperoni and cheese, chicken and cheese and double cheese - and is paired with a dipping sauce.

Restaurant-industry experts say such chains are targeting price-sensitive customers for whom a $5 value meal, such as the ones recently launched by McDonald's (MCD) and Burger King (QSR), may not be enough of a draw. It's all about increasing foot traffic at a time when concerns about inflation continue to weigh heavily on diners' minds. A recent survey by LendingTree found that 62% of consumers are cutting back on fast food because of high prices.

Steve Zagor, a veteran New York-based restaurant consultant, said he expects other fast-food chains to join the under-$5 bandwagon, with no end in sight to how low things can go.

"I'm waiting for them to pay us to eat," said Zagor.

The below-$5 options are individual offerings, so they represent a different kind of bargain than a value meal that packages multiple items together at a discount price. Industry experts say the fast-food chains are hoping customers will order multiple items - say, a soda to go along with that $1.99 double cheeseburger - so that their overall tab increases.

'I'm waiting for them to pay us to eat.'Steve Zagor, New York-based restaurant consultant

The chains promoting these $2 to $3 offerings say they are trying to provide options for cost-conscious consumers. In the case of Sonic, the chain specifically says it's taking aim at those who want wallet-friendly choices beyond the value meals.

"They shouldn't have to settle for boring meals with limited options, like a lot of the value-meal offerings that have recently launched," Sonic Chief Marketing Officer Ryan Dickerson told MarketWatch.

Sonic has also emphasized that its $1.99 menu will be a permanent part of its menu, perhaps a not-so-subtle dig at McDonald's, which has promoted its $5 value meal as a limited-time offering.

Still, McDonald's was arguably the original champion of cheap dining options with its popular $1 menu items. The chain no longer appears to have any items that are regularly listed for a buck, although some locations do offer a McDouble burger for 2.49, according to a MarketWatch check of pricing nationwide.

Mark Kalinowski, a fast-food-industry analyst, said he wouldn't be surprised to see McDonald's promoting bargain-priced items beyond the $5 meals.

"I do think McDonald's wants to figure out more of an everyday value [proposition]," he said.

McDonald's didn't respond to a MarketWatch request for comment.

Kalinowski said that even when chains offer items for as low as $1.99, they can still eke out a profit on them, although the margin may be as little as 1% to 5%. But the expectation is that customers will purchase additional items.

"Most people aren't going to Sonic and ordering one thing," he said.

While bargains are all the rage right now at fast-food restaurants, Arlene Spiegel, another New York-based restaurant consultant, said the trend may not last forever. At some point, customers may question how good the food can be when it costs so little. And that may spark chains to reverse course by charging regular prices and emphasizing quality over value, Spiegel noted.

"When everyone is zigging, you zag," she said.

-Charles Passy

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07-13-24 1039ET

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