SAN ANTONIO, Texas March 27 (Reuters) - Runaway prices

at U.S. fast-food joints and restaurants have made people

skittish down the income ladder and executives at chains

including McDonald's and Wendy's recently said

they worry about losing business from those on the tightest

budgets.

Roughly a quarter of low-income consumers, defined as those

making less than $50,000 a year, said they were eating less fast

food and about half said they were making fewer trips to

fast-casual and full-service dining establishments, according to

polling in February by Revenue Management Solutions, a

consulting firm.

The rising price of food is contributing to budget-conscious

diners cutting back.

Whether consumed at home or in a restaurant, food prices

rose 20% from Jan. 2021 to Jan. 2024, the fastest jump on

record. A recent census Household Pulse Survey showed half of

people earning less than $35,000 a year had difficulty paying

everyday expenses, and nearly 80% were moderately or "very"

stressed by recent price increases.

Lauren Oxford, a musician who works part time at a

bed-and-breakfast in Tennessee, said she used to stop by

McDonald's after running errands, treating herself to two double

hamburgers, fries and a drink, for less than $5. As prices rose,

she switched to smaller hamburgers and stopped getting the

drink.

But after a year in which McDonald's franchisees drove

prices up about 10% according to the company's executives, she's

going to McDonald's less in general. "Now I don't know if I can

justify that."

In the Fed's most recent Beige Book compendium of anecdotal

reports gathered from business and community contacts around the

country, 7 of 12 regional Fed districts reported low-income

consumers were changing spending habits in search of bargains,

seeking more help from community groups, or struggling to access

credit.

About one-third of Black American households, and 21% of

white American households, earned less than $35,000 in 2022,

according to the latest available U.S. census data.

For fast-food companies that often promote an image of

affordability, low-income consumers are a significant portion of

the customer base and a bellwether for longer-term trends. But

they are typically the first to cut back spending and the last

to come back.

But now, chains may be less likely to chase customers as

hard as they have in the past because even with a drop in

traffic, sales have remained consistent supported by increased

prices.

Fast food companies aren't "in a hurry to take traffic over

profit the way they were a decade ago," said Mike Lukianoff, CEO

of SignalFlare.ai and a veteran consultant in the fast food

industry.

For example back in 2008, Subway introduced its nationwide

$5 footlong, which became the poster sandwich for the Great

Recession. That spurred rivals to introduce extreme value deals

for budget-conscious customers, such as "$5 Fill-Up Boxes" at

Yum! Brands KFC ( YUM ).

In 2016, McDonald's, after a prolonged slump in sales,

introduced a bundle deal it called "McPick 2", allowing

customers to choose 2 items, like a McDouble, for $2. Within

months, Wendy's offered a four for $4 deal. Burger King offered

five for $4. Pizza Hut had a $5 "flavor menu."

APP-DRIVEN DISCOUNTS

Now, instead of across-the-board menu slashes and broad

discounts, industry analysts say chains are being more

selective, aiming them at specific demographics or limiting them

to specific meal times or channels, such as its app or only

through delivery.

McDonald's executives told investors in February that it

would rely on its existing "value menu" to appeal to low-income

consumers who might be tempted to eat packaged food at home

instead. CFO Ian Borden said affordability is core to the brand,

and the company would continue "evolving" its value offerings.

"The battleground is certainly with that low-income

consumer," McDonald's CEO Chris Kempczinski told investors,

referring to people making less than $45,000.

Wendy's recently introduced a limited-time $1 burger -

available only through its app. Its CFO Gunther Plosch told

investors in February that among lower-income customers, their

traffic is down but their share with the general market is

unchanged.

For major fast-food companies, loyalty apps are the go-to

strategy among major brands to increase retention and the

average amount of money spent. The upside for chains, David

Henkes, senior principal with Technomic said, is that they

capture more transaction data and demographic data for the

consumer, "which is a trade-off many are happy to do."

For example, McDonald's frequently offers in-app discounts,

such as 20% off an order or free delivery with a large enough

order.

Domino's halved the minimum purchase price to get

points in its loyalty program, to $5 from $10, its CEO told

investors at a conference in January. It also reduced the number

of purchases needed to get a free pizza to as few as two from

six. "And so essentially, for this lower-income consumer, we've

made the brand more accessible," CEO Russell Weiner said.

To be sure, not every chain is seeing weakness among

low-income customers. At Taco Bell, which sells a single taco

for $1.40 at many of its stores in San Antonio, locations in

low-income markets did better than other locations, Yum! CEO

David Gibbs told investors in February.

McDonald's still holds its appeal for Andreas Garay, a

retail worker eating at a McDonald's in westside San Antonio. He

said he plans to keep his coffee-and-Big-Mac habit-- even if

prices continue going up.