We here at Five Point Capital have a noticed a big shift in the world of low-priced food. When it came to fast food, companies like Pizza Hut and McDonalds were reliably cheap and simple—pizza at Pizza Hut, burgers and fries at McDonald’s, tacos at Taco Bell. However, in the last year or so it seems that these fast food restaurants have been trying to reinvent themselves as higher-class and fancier than they used to be known, possibly as an answer to the downturn of the economy; people cannot afford to go out for fancy, sit-down meals, so they may turn to their local fast food joint for alternatives.
About a year ago, Pizza Hut put out commercials that featured diners at a fancy restaurant eating classy pasta dishes. The chef then entered the dining area to inform the patrons that the pasta had actual been delivered from Pizza Hut. This commercial marked one of the first attempts of a fast food chain to offer high-class food at high-class standards, all at fast food prices and fast food convenience.
Since then, McDonald’s has reinvented itself completely in order to compete with Starbucks, by offering fancy coffees and lattes, billing the items as the “McCafé” menu. Starbucks, in turn, has turned at least one of their chain branches into what has been coined “BarBucks,” featuring wine and beer with live music.
Is this move of making the affordable, fast food world fancier counterintuitive? We here at 5 Point Capital don’t think so. We doubt that those who are scrimping and saving will be turned off by fancy coffees or hearty pasta dishes; rather it seems that those who cannot afford a fancy cocktail might turn to the more affordable Starbucks for a late-night gathering. Those who cannot afford a high-priced cappuccino at a local coffee bar may turn to McDonald’s for a lower-priced version of the same thing. Likewise, those who cannot afford to dine out at a fancy Italian bistro may instead choose to order pasta dishes from Pizza Hut at take-out prices. We think the idea is genius, but we hope that these companies do not lose sight of their roots, or choose to turn their backs on their original menus; where would we get out French fries from?!