Inside the fierce battle for fast-food customers

They're the four-letter words that customers can't get enough of these days.

Touting "free" items and a good "deal," restaurants are trying to attract diners and combat flat traffic.

From left: McDonald's Chicken McNuggets and Burger King Chicken Nuggets
Source: McDonalds; Burger King

"The only thing that's holding the QSR (quick-service restaurant) segment up is offering up these discounts, and it's still not driving traffic as they hoped…It's just a real battle for market share," said Bonnie Riggs, a restaurant industry analyst at market research firm The NPD Group.

There's evidence deals do spark visits. Deal-related traffic rose 5 percent during June to August versus a year ago. Non-deal traffic contracted 1 percent in the same period, according to NPD.

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The latest front in the fast-food wars is the humble chicken nugget, which is cheaper to prepare than items using whole chicken breasts.

On Monday, Burger King announced a promotion for 10 nuggets for $1.49 at the same time as rival McDonald's is hawking 20 nuggets for $5 and promoting its annual Monopoly contest—a perennial traffic driver.

"With the growing consumer demand for chicken menu items, we wanted to offer our guests an aggressive deal rivaling anything our competition has ever done," said Eric Hirschhorn, Burger King's chief marketing officer in North America, in a release.

The McDonald's story
The McDonald's story

Meanwhile, McD's has heavily advertised its breakfast offerings through a duo of free coffee promotions this year. It is trying to defend its breakfast turf against Taco Bell's breakfast menu, which launched earlier this year.

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In coming months, customers may be able to thank Russia for more chicken promotions. The country's sanctions on U.S. chicken means a bigger supply stays stateside.

"Historically what we see when we have high beef prices, you see a lot more promotion of other proteins, chicken in particular," said Riggs during a phone interview.

Gregg Rapp, a menu engineer and restaurant consultant, likens deals such as the nugget promotion to a "loss leader in the grocery store" that brings customers in the door.

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The move comes just days after Jack in the Box's Qdoba chain announced a revamped pricing strategy in which additional items like queso cheese and guacamole would no longer cost more. Qdoba's emphasis on value follows an earlier nationwide price hike at its rival Chipotle Mexican Grill.

Rapp sees Qdoba's new structure as a way for it to strengthen its value proposition in customers' minds, he said in a phone interview.

"That value builds that attraction toward that restaurant," he said. "It's building that value so you feel good about your check."

At competitor Chipotle, there's evidence its price increase, which hiked beef prices by an average of 9 percent but chicken only about 5 percent, has led to a slight tweak in consumer behavior.

"We expected some customers would trade down from steak to chicken as a result of the higher steak premium, and we have, in fact, seen some customers shift from steak to chicken," said John Hartung, the company's chief financial officer, on its last earnings call. "Aside from the slight shift from steak to chicken, our customers have generally responded well so far, but it is early and we'll continue to watch for resistance in terms of fewer customer visits, as well as customers trading down."

As certain commodity prices remain high, Rapp stressed "the key in the restaurant world is to find the items that have a low cost and make them in to your best items."

Taco Bell's new Dollar Cravings menu appears to be aimed in part at doing just that. Of the menu's 11 items, only two contain pricey beef and a third touts chicken, less expensive than beef but more so than beans.

For those restaurants that aren't hopping on the promotion bandwagon as many counteract price increases with deals, Riggs sees the strategy backfiring.

"Unless you're offering some type of promotional or deal, you're not going to get them in to the restaurant," she said.