Is there a fast-food price war looming? Companies face difficult challenge if they go too high

Rising menu prices have caused traffic to dip at fast-food restaurants as economic concerns push their core customers to rein in discretionary spending. 

But fast-food companies that are already grappling with margin pressures face a difficult challenge: They risk alienating the very households that have long sustained their business if they raise prices too much.

McDonald’s announced this week it was doubling down on its value proposition to rejuvenate traffic among its cost-conscious customers.

But the move from such a behemoth could, in turn, ignite a shift in the entire industry, forcing its biggest rivals to follow suit with discounts of their own, especially within the same day, according to Mark Wasilefsky, head of restaurant and franchise finance at TD Bank.

The “Golden Arches” is bringing back Extra Value Meals – which haven’t been on menus since 2019 – as a menu category.

The company will offer eight meal bundles at breakfast, lunch and dinner, each costing 15% less than buying the items separately. 

Wasilefsky called the limited-time promotion a “power move” given how massive McDonald’s presence is in the US.

He argued that while the deep discount will force rivals to roll out similar deals, they likely won’t be able to top McDonald’s significant percentage cut.

“When you look at margin, 15% is an incredible discount,” Wasilefsky said.

“I think other brands will have to follow suit depending on the daypart. If it’s breakfast, and they compete in the breakfast space, they’re going to have to discount their breakfast.” 

The same applies to midday or the afternoon as well. Wasilefsky doesn’t believe McDonald’s promotion will start a pricing war because he doesn’t think anyone could beat that deal. Rather, “they will try to match them in routine with as many of their customers coming to their spot as possible,” he added. 

However, sparking a price war isn’t the fast food giant’s intention – it’s about disrupting consumer routines, pulling loyal customers away from competitors like Dunkin’ and getting them hooked on McDonald’s offerings, so even after prices return to normal, the company hopes those new habits will stick, Wasilefsky said. 

“They do try to obtain new clients. But what you’re really trying to do is change consumer behavior. You’re keeping your existing clients and getting people to come to you for the value,” he added.

Simply put, it’s not about boosting short-term sales and more about shifting long-term customer behavior.

It’s geared to help them in the long term as the industry faces a turbulent period. 

The fast-food sector has faced a combination of challenges, from margin pressures due to supply chain issues and higher labor costs to subdued traffic industry-wide, with only a few exceptions like Chipotle and Cava, according to Wasilefsky. 

As of July, menu prices at limited-service restaurants, which include fast-food eateries, rose by 3.3% year over year, according to data from the National Restaurant Association.

Menu prices at limited-service restaurants peaked at 8.2% in April 2023, according to the data.

In the first fiscal quarter of 2025, McDonald’s saw sales at U.S. stores open for at least a year drop due to weaker-than-expected traffic across lower- and middle-income segments.

Starbucks – another chain that may feel the impact of McDonald’s promotion, Wasilefsky noted – said first-quarter traffic was still down from a year earlier.

In the second fiscal quarter of the year, profits at Wendy’s U.S. company-owned restaurants declined due to a combination of higher food and labor costs coupled with a decline in traffic. 

That consumer pullback may prove more structural than cyclical.

Will Auchincloss, who serves as the EY‑Parthenon’s Americas retail sector leader, said its consumer research points to the fact that Americans are beginning to adjust discretionary spending to offset rising costs for essential goods and services like food and housing. Restaurant spending, across all income cohorts, is the first to take a hit, he said. 

“With nearly 40% of lower-income households already pulling back, recent QSR [quick-service restaurant] price cuts may be a signal of a broader industry shift,” he said, adding that “Brands are facing mounting pressure from value-conscious consumers, and if this trend accelerates, we could see a realignment of pricing strategies across the sector.”