[San Francisco, CA, October 17th, 2024] - With restaurant industry traffic slowing nationwide, two California fast-food restaurant operators are adopting contrasting strategies to generate revenue.
Operators are facing additional headwinds in California, where fast food workers received a 25% pay bump in April when the minimum wage rose to $20 an hour.
In response to the wage increase, operators in the state have raised menu prices, cut labor and reduced store hours. According to JUICER data, pizza prices have gone up in California 10.5% compared to August 2023.
“You have to pass on the cost to customers,” said Blaze Pizza and Subway franchisee Reza Medali, noting that he’s increased menu prices, on average, by 8% at both of his Southern California-based concepts.
However, consumers are fed up with high menu prices, resulting in fewer visits to restaurants. That’s forced chains to resort to margin-hurting value meals to entice consumers.
Medali said meal deals and specials at Blaze and Subway can act like a “teaser” to bring back customers. Blaze has offered a half pizza and drink special for $7.99. In late August, Subway reduced the price of its famed Footlong sub to $6.99. They’ve continued this focus into autumn with a Buy One Get One special for Footlong subs. Both offers have been valid only through the chain’s app and digital channels.
Still, deep discounts can’t be a permanent strategy because the cost of doing business is so high these days, Medali said.
“Trust me, we're not even doing what we're supposed to do. We try to pass on as minimal as we can so we can stay in business,” Medali said of raising menu prices.
Consumer behavior strategist Lisa Miller cautioned that value deals train people to wait for meal discounts.
“Discounting drives disloyalty not loyalty,” said Miller, president of Lisa W. Miller & Associates. “It’s a race to nowhere.”
Burger Boss, a premium burger brand in Orange County, Calif., is taking a different approach to increasing its revenue amid rising costs.
Although the two-unit Burger Boss isn’t required to pay fast-food workers $20 an hour, Vince Vogler, director of operations, said he’s had to raise employee wages to “remain competitive” with QSR rivals. The California fast-food wage law only applies to brands that have 60 or more locations nationwide.
To retain workers, Vogler said Burger Boss is paying nearly $20 an hour.
“It’s a ripple effect,” he said.
To offset rising beef and labor costs, Burger Boss did raise prices earlier this year.
However, while competitors have raised prices substantially more, Burger Boss only raised prices 3% on select signature burgers.
“We didn’t increase prices across the board because we were worried about a decrease in foot traffic,” Vogler said.
The brand, which sells grass-fed, one-third-pound burgers, also has avoided offering margin-hurting promotions.
Managing Director Jeff Sweetman, who has held executive positions for over 20 years at Subway, Dunkin', Togo's, Yogurtland, and Quiznos, said he is focusing on promoting the brand’s “perceived value” to increase traffic at Burger Boss’ locations in Tustin and Mission Viejo, Calif.
He and Vogler are leaning into menu innovation and automation to increase revenue.
The burger brand recently enhanced its beverage and dessert program by switching from Pepsi to Coca-Cola and adding premium teas, fresh lemonade and milkshakes to the menu.
The brand has also added new menu items to appeal to a larger audience, including women. For example, Burger Boss recently added a grilled chicken sandwich to the menu and salads. They are also planning to develop a small bites combo meal to cater to consumers looking for a cheaper, petite meal without sacrificing quality or margin.
Additionally, Burger Boss has turned to kiosks to increase revenue.
The company, an early adopter of kiosks, recently switched to a new tech provider, Bite and Paytronix. The kiosk provider and payments processing solution have helped the brand to increase digital sales and check average. The new kiosk ordering system, which is easier to navigate than their prior product, has twice as many people using it.
Since deploying the new kiosks, the average check is up by about $10.
The company also did a competitive analysis of its menu and determined that they provide higher quality meals and larger portions than their rivals. Burger Boss intends to spend more marketing dollars promoting the brand’s value for premium burgers, which range in price from $8.95 to $15.55.
All the upgrades appear to be working. Year to date, consolidated guest counts at both its stores are up 33.2%, an incredible feat when most chains are experiencing sharp drops in traffic.
“The sweet spot is high perceived value, and high margin,” Sweetman said. “When you have that, you win.”
