McDonald’s, its rivals offer $5 meal deals to lure back budget-conscious consumers. Will the plan work?

Fast food companies are going head-to-head by offering nearly identical promotions to lure back customers who've been distanced by increased menu prices. 

McDonald's on Tuesday rolled out its highly anticipated $5 value meal at restaurants nationwide in hopes of driving traffic while the deal lasts. 

The $5 meal deal, in which customers get to choose one of two sandwich options plus small fries, a four-piece McNuggets and a small soda, is expected to run nationwide for four weeks. 

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However, during an interview with the "Today" show, McDonald’s USA President Joe Erlinger said that some franchisees are going to keep the promotion going for longer than four weeks. Some in Denver, Dallas, Phoenix, Las Vegas and Kansas City have already done so, he said. 

"What we really want to do is talk about this nationally for four weeks, and then we think it'll be a local promotion," he said. 

Ticker	Security	Last	Change	Change %
MCD	MCDONALD'S CORP.	290.28	+1.81	+0.63%

But McDonald's rivals tried to beat the company to the punch, launching similar deals weeks earlier in hopes of boosting traffic.

NEARLY 80% OF AMERICANS NOW CONSIDER FAST FOOD A ‘LUXURY’ DUE TO HIGH PRICES

For instance, Wendy's responded by sweetening its $5 Biggie Bag offer. Through June 30, customers who use Wendy's app will get a free small Frosty with the purchase of a Biggie Bag, which includes a choice of a Jr. Bacon Cheeseburger or Crispy Chicken Sandwich, paired with nuggets, Jr. Hot & Crispy Fries and a small soft drink.

In May, Burger King announced it was bringing back its $5 "Your Way Meal" ahead of schedule.

The meal, consisting of a choice of three sandwiches along with chicken nuggets, french fries and a drink, is allegedly supposed to remain on menus for several months.

But companies aren't cutting prices for fun. Rather, it's a sign that customers are feeling the pinch even at fast food eateries, which are traditionally known for their budget-friendly menus. 

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In fact, 80% of consumers now consider fast food to be a "luxury" purchase due to how expensive the meals have become, according to a recent nonprobability survey conducted by LendingTree.

Ticker	Security	Last	Change	Change %
QSR	RESTAURANT BRANDS INTERNATIONAL INC.	69.09	-0.69	-0.99%

In some cases, prices for Big Macs have risen as much as $18. While the company said that's the exception and not the norm, the average cost of a Big Mac today is $5.29. That's an increase of 21% with all the inflationary pressures factored in from the past few years.

In May, McDonald's CEO Chris Kempczinski told analysts during the company's first-quarter earnings call that "across almost all major markets, industry traffic is slowing." 

"In the context of a difficult macro environment for the industry, we know our customers are looking for reliable everyday value now more than ever," Kempczinski continued. 

That same month, Wendy's Chief Financial Officer Gunther Plosch also told analysts that the "consumer is still under pressure." 

Plosch noted that visitation is down in lower income households. At the same time, traffic is up among higher-income consumers, which signifies that those households are trading down for more affordable options. 

Fast-food restaurant prices skyrocketed earlier this year as businesses worked to protect their margins against rising supply chain and operational costs. However, as supplier costs started to come down, companies shifted focus and began competing to win customers back, according to Mani Kulasooriya, co-founder and CEO of Cut+Dry, a foodservice e-commerce platform that enables restaurants to digitize food ordering.

Ticker	Security	Last	Change	Change %
MCD	MCDONALD'S CORP.	290.28	+1.81	+0.63%
QSR	RESTAURANT BRANDS INTERNATIONAL INC.	69.09	-0.69	-0.99%
WEN	THE WENDY'S CO.	17.98	-0.13	-0.72%

"Fast food wars will center on $5 deals – but as restaurants go head-to-head, it’ll take more to restore customer loyalty," said Kulasooriya.

He said that cost is "a critical factor" to get people through the door, but quality will ultimately make customers come back. 

"If restaurants can’t maintain quality while they push out quantity, the $5 buzz won’t last. In fact, the buzz may hinder customer retention once prices even out," he said. 

The winners in this race "will prioritize menu innovation," Kulasooriya added.