This Is Why $5 Is the Magic Number for Fast Food

Key Takeaways

• Fast food executives hope bargains will bring back price-conscious consumers, especially those in low-income households.
• Chains are dissatisfied with their foot traffic despite a slight uptick in visits to quick-service restaurants, according to Placer.ai.
• Five dollars is a simple way to signal that a brand is affordable, marketing experts say.

It’s cutthroat at the food court.

Bargains have become a crucial draw for restaurants as price-conscious consumers eat out for fewer meals, executives say. Multiple fast food CEOs have likened the competition for diners to a battle, one that El Pollo Loco’s (LOCO) Elizabeth Williams recently called a “value war.”

One major front is assembling appealing $5 meals. El Pollo Loco recently started a $5 Tuesday taco special and will soon sell a chicken bowl at the same price. McDonald’s (MCD) is extending its $5 Meal Deal into December. Kentucky Fried Chicken, Popeyes, and Burger King have recently touted their own five-buck promotions.

The five-dollar price point—the smallest unit of currency that can be reasonably expected to cover a meal—is having a moment, marketing experts say. 

The pull is largely psychological since most consumers won’t actually pull out a $5 bill, said Joseph Nunes, a marketing professor at the University of Southern California Marshall School of Business— and even if they do, taxes will typically push a meal’s price above that. 

Still, a $5 offering can strengthen the sense that a brand is affordable, according to Melina Palmer, a behavioral economist and author who recently published a book on pricing.

“One of the first things we learn to do is count by fives,” Palmer said. “So that’s super easy for people.”

There are signs of modest improvements in foot traffic, but chains are still lamenting their latest patronage figures. Placer.ai, which uses devices and machine learning to measure foot traffic, says third-quarter visits to U.S. quick-service restaurants were up 0.2% year-over-year (YOY) and 0.1% from the second quarter.

McDonald’s this summer credited $5 meals with building inroads with low-income households for the first time in more than a year, Ian Borden, the chain’s chief financial officer (CFO), said on an earnings call according to a transcript provided by Alphasense.

Diners who order the deal—which contains a sandwich or burger, fries, chicken nuggets, and a drink,—tend to spend less (and, in some cases, eat less) but then return more frequently and are an important part of the chain’s base, said Borden.

KFC expanded its $5 offerings by adding a chicken tenders-and-fries package last month, spokeswoman Lauren Leger said. The move is an attempt to counteract sluggish sales, said David Gibbs, CEO of Yum (YUM), its parent company. Yum’s domestic same-store sales fell 5% YOY in the third quarter, according to a company press release. 

“In the U.S., limited time offers underperformed expectations due to a more intense competitive environment,” Gibbs told analysts on a conference call, according to a transcript made available by AlphaSense.

Popeyes and Burger King have also hyped deals at the $5 price point in recent months, according to their parent company, Restaurant Brands International (QSR).

El Pollo Loco is selling two tacos for $5 on Tuesdays through the end of the year. Its original pollo bowl will be available at that price next week through the end of January, spokeswoman Brittney Shaffer said. 

El Pollo Loco is kicking off its promotions as executives say the fast-casual chain is seeing lower same-store sales this quarter. 

“It definitely is that value-oriented consumer more than ever telling us that they need more value,” CEO Williams said, according to a transcript provided by AlphaSense.