Restaurant Price Cuts Make Headlines. But Here’s Why the Hangover Lasts Years

When PepsiCo announced price cuts on Doritos, Lay’s and Cheetos by up to 15 percent in February, the Q1 earnings results that followed rippled across the business press almost immediately. CNBC reported that the company’s struggling North American food business had returned to “volume growth.” Bloomberg covered the earnings.

Reuters had reported the price cuts weeks earlier. Fortune declared it all “worth it.” For a quarterly earnings release, it generated an unusual amount of attention, and it landed at exactly the moment restaurant operators were already debating whether to follow a similar path.

Let me be direct about why that concerns me.

Price cut impact

Pepsi’s net revenue increased 8.5 percent and organic revenue increased 2.6 percent. Of that 8.5 percent, 3.4 percent came from foreign currency movements and 2.5 percent from acquisitions and divestitures. The food division, where the actual price cuts happened, grew volume 2 percent with revenue up 1 percent.

A 15 percent price decrease yielding 2 percent volume growth is not a victory lap. It is a data point that requires considerably more time to evaluate. The headlines got ahead of what the numbers actually say.

I spent years at Starbucks managing pricing across its $20-plus billion food and beverage portfolio. The financial math of price decreases is the part most people understand. The increase in traffic rarely offsets the margin that’s given away. What gets far less attention is how those price cuts reshape consumer expectations and purchasing behavior over the next 18 to 24 months.

Subway example

The restaurant industry already has its cautionary tale, and it is not Pepsi. It’s Subway.

The $5 Footlong was the brainchild of Stuart Frankel, a Subway franchisee who owned two locations at Jackson Memorial Hospital in Miami. In 2004, he noticed that sales were slow on weekends and began selling footlong sandwiches for $5 on Saturday and Sunday instead of $6. Sales shot up almost immediately, going from $14,000 to $23,000 per week. Despite the results, Subway’s corporate team remained skeptical for years.

The idea languished until 2008, when corporate witnessed one shop’s sales double in a single day after the promotion. On March 23, 2008, Subway’s leadership took the offer nationwide. Sales increased 25 percent within the first two weeks, and by the end of August 2009, the promotion alone had generated $3.8 billion in nationwide sales (more than Arby’s and Domino’s system revenue combined).

The result was the perfect storm of macro headwinds, value-seeking consumers, value-driven promotions, and a catchy marketing jingle that created the $5 Footlong mania. It looked like a triumph, but it was really a Trojan horse.

Unsurprisingly, rising food, labor and rent costs made the $5 price unsustainable and broke the unit economics. The COGS on a Turkey Sub (the cheapest option) was $4.85 while most of its subs cost well over $5. Franchisees pushed back on the promo, and Subway announced it would no longer require franchises to run the deal. But the damage was already done. Consumers had anchored to five dollars. The sandwich had not changed, but the perceived value assigned to it had. And that reassignment proved extraordinarily difficult to reverse.

This is what makes price decreases so dangerous. When a brand lowers prices through mass discounting, bundles, or broad menu price reductions, consumers do not simply notice and automatically increase frequency. They recalibrate the value equation and are trained to expect the lower price.

When prices inevitably need to rise to offset inflation, labor, and commodity costs, even modest increases can trigger outsized negative reactions. What began as a temporary value offering becomes a permanent expectation. Restaurants are left with an uphill battle to simply return to the original price with a hypersensitive customer base.

This is a two-year problem, not a six-month problem, and the industry has no shortage of evidence. Noodles & Company turned to promotions as traffic weakened. Panera introduced Value Duets and then continued expanding its value platform as consumers became conditioned to expect more. Boston Market spent years training customers to expect discounted bundle meals before the brand ultimately faded into irrelevance. Each of these brands made a version of the same decision. Each is managing a version of the same consequences.

Long term consequences

I was in a room at an industry conference in April, listening to C-suite executives debate whether to take prices down. Several brands in that room had already started. I understand the instinct. Traffic is soft, inflation is high, and consumers are stretched. Value is the focus. Lower prices is the obvious lever.

Restaurants must think through the long term brand and customer consequences before lowering prices, introducing bundles, or stepping onto the discount treadmill. New and existing customers trade down and anchor into lower prices, creating lasting pricing risk. Cutting prices to win back lapsed customers misunderstands how those customers behave. A consumer who left because of price does not come back to check whether prices have dropped before making a purchase.

The path back is not buying cheap traffic at lower prices.

It is building sustained demand through a stronger value equation by improving quality, convenience, innovation, and the customer experience, not by training customers to expect less expensive versions of the same product.

Pricing is a high impact, one-way door. Once prices come down, getting them back up is far more difficult than most operators expect. The good news is that most brands have more pricing power than they realize, but most do not know where to look for it. Pricing power is never uniform across locations, product, or channel. The right strategy for location could be completely wrong for another.

Successful brands identify where customers are willing to pay more and capture the opportunity surgically. They adjust menu architecture to move customers toward higher-value options, use limited-time offerings to build demand without permanently resetting expectations, and make pricing decisions rooted in data rather than emotion. It is possible to raise prices without losing traffic, but only when you know exactly where your pricing power lives.

Price decreases are a Trojan horse. They look like relief. They generate headlines. But they carry consequences that take years to fully surface. Margin erodes. Brand perception shifts. And every customer who anchored to the lower price now expects it permanently. Pepsi is still writing that chapter. Subway wrote it over a decade ago. The brands debating this decision today are choosing which version of that story they want to tell.

Brands cannot control the macro economy. They can control whether they make a permanent concession to it.

Patrick Daprile is co-founder of Quantiiv, the first AI-native intelligence platform built for restaurant operators. He previously managed a food and beverage portfolio exceeding $20 billion at Starbucks.