Everyones cutting down on restaurants

More people are staying home instead of eating out — but traffic at fast-food joints is actually up. The catch is, customers are opting for the best deals, like $1 mini-burgers or 89-cent tacos. Restaurants are rolling out cheap specials to compete for these customers, but increased ingredient costs are squeezing the profit margins on these low-priced items.

“These 99-cent and dollar meals are priced at 2002 cost levels,” a consultant to McDonald’s owner-operators told the Chicago Tribune. “It’s insane.”

Some fast-food chains are reevaluating their bargain-product strategy. McDonald’s is testing out small price increases on its dollar menu; for example, the $1 double cheeseburger may go up to to $1.09 or $1.19. Burger King, meanwhile, is testing a smaller beef patty for its $1 Whopper Jr.

These chains are “walking a tight-rope,” the Tribune says.

“It’s kind of like a game of chicken” for fast-food chains, said Morningstar restaurant analyst John Owens. The restaurant industry doesn’t want to repeat the notorious “burger wars” of 2002, when fast-food outlets got carried away with discounting premium items such as Whoppers and Big Macs and their profits took a hit, Owens said.