McDonald's, Wendy's dig in on deals in battle for diners

Wed May 8, 2013 4:13pm EDT

A McDonald's restaurant sign is seen at a McDonald's restaurant in Del Mar, California April 16, 2013. REUTERS/Mike Blake

A McDonald's restaurant sign is seen at a McDonald's restaurant in Del Mar, California April 16, 2013.

Credit: Reuters/Mike Blake

(Reuters) - McDonald's Corp (MCD.N), Wendy's Co (WEN.O) and other U.S. restaurants are battling for the attention of frugal diners with coupons, limited time offers and other promotions - a fight that could intensify if the costs of chicken and other key ingredients remain less pricey than feared.

While prices for beef and other items are up due to last summer's historic drought, overall food costs remain relatively muted, giving restaurant operators "more ammunition to play the promotional and value game if they want to," said Edward Jones analyst Jack Russo.

Fast-food chains in the United States and other countries around the globe are struggling to increase traffic and sales as persistent economic weakness has taken a big toll on the low- and middle-income diners who are their chief customers.

McDonald's on Wednesday reported an unexpected 0.7 percent rise in April sales at established U.S. restaurants, helped by the national release of premium McWraps with discounted introductory prices, value food options and continued strength in breakfast items.

Still, the world's biggest restaurant chain by revenue is struggling to meaningfully boost sales after a long run of outperforming smaller rivals, which of late have been more nimble in introducing attention-getting menu items.

McDonald's has vowed to roll out more limited-time offers and other deals, along with more new food. And, it has said it is willing to sacrifice some profitability to win market share.

First-quarter sales at established Wendy's North America restaurants also were up, but less than analysts expected, and its shares fell over five percent.

Executives at the chain known for its square, fresh beef hamburger patties and thick Frosty shakes, said it lost ground in the low-priced food fight - something it plans to fight with marketing and advertising for food priced around 99 cents.

"We have been growing large hamburger, large chicken sandwich and salad sales, but losing share for value menu customers," Wendy's Chief Executive Emil Brolick said on a conference call with analysts.

The 99-cent price shoppers are heavy fast-food users "and you need to continually remind them that you have products available for them every day," Brolick said.

Elsewhere, Yum Brands Inc's (YUM.N) Taco Bell - long known for being a purveyor of very inexpensive food - is testing a "$1 Cravings" menu that may go national. It is also advertising $1 "Happier Hour" offers from 2 p.m. to 5 p.m.

And, the battle for cash-strapped customers is not limited to the United States.

Canada-based Tim Hortons Inc (THI.TO), which has consistently delivered strong results, on Wednesday said same-store sales in the United States fell 0.5 percent in the first quarter, while sales in Canada slipped 0.3 percent.

April softness in McDonald's Europe, Asia/Pacific, Middle East and Africa regions more than offset the better-than-expected U.S. growth in sales at restaurants open at least 13 months.

McDonald's April same-restaurant sales fell 2.4 percent in Europe - where austerity measures and other financial woes have dampened demand - and 2.9 percent in the Asia/Pacific, Middle East and Africa (APMEA) region - where sales of menu items with chicken have been hurt by an outbreak of bird flu.

Shares of McDonald's ended Wednesday down 1.3 percent at $100.95, while Wendy's stock fell 5.6 percent to $5.78. U.S.-traded shares of Tim Hortons (THI.N) finished down 2.4 percent at $56.95.

(Reporting by Lisa Baertlein; Additional reporting by Arpita Mukherjee in Bangalore; Editing by Saumyadeb Chakrabarty, Don Sebastian and Tim Dobbyn)

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