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The $5 Phenomenon
Is it working?
Boston Market five dollar menu marketing promotion.

In this election year, it seems Abraham Lincoln is getting more play than both of the current presidential candidates combined—at least in the world of fast food.

Last month Boston Market became the latest chain to advertise menu items—11 in all, including rotisserie chicken with sides, a chicken salad, and a chicken pot pie—priced at $5. The offer follows similar efforts by other chains, such as Subway's $5 Footlong, Quiznos's $5 Deli Favorites, and Pizza Hut's (NYSE: YUM) $5 Pizza Mia.

But why has the five spot suddenly become so hot?

“The $5 price point is an important part of the new vernacular in the restaurant industry,” said Judy Cantrell, Boston Market chief brand officer, in a statement when the chain debuted its $5 menu. “It’s become a price point that consumers respond to.”

But Rafi Mohammed, a pricing consultant and author of The Art of Pricing, has a different theory.

"I don't necessarily think $5 is that significant of a number," he says. "It's just the certainty of a number which is very important."

Disposable income dropped 1.7 percent in July after taking a plunge of 2.6 percent in June, and Mohammed says as a result customers are cutting back on expenditures such as eating out. By advertising menu items at a set value, chains are letting customers know up front how much they can choose to spend inside their restaurants.

"They're putting the stake in the ground, drawing a line in the sand, and customers are thinking, 'Now I know I can get out of there for $5 plus tax,'" Mohammed says.

The $5 choices are also meal-sized, whereas lower-priced dollar- and value-menu items are more snack-like. This, Mohammed says, puts purveyors of the $5 options in position to take advantage of trading down from casual dining restaurants, where meals typically run closer to $10 or $12.

"Consumers are willing to pay $5 for a meal as long as they think they are getting a good value," says Tony Pace, CMO for the Subway Franchisee Advertising Fund Trust (SFAFT).

A Florida Subway franchisee started the $5 Footlong promotion just before Thanksgiving in 2007, and national advertisements began running this past March. Since then, the offering has become a staple of Subway's menu in many markets.

Pace declined to provide specific sales numbers but says the items have succeeded in both driving traffic and increasing check size. He says competitors would have been satisfied with one-sixth of the success the chain has seen from the $5 Footlongs.

Franchisees, often the first to cry foul when corporate starts promoting discounted items, also seem happy.

"This is the best promotion we've ever seen," says Tom Mulligan, a national board member of the North American Association of Subway Franchisees (NAASF), owner of two units in West Palm Beach, Florida, and board chair for his local SFAFT. "Our customer counts skyrocketed and so did sales."

He says his stores alone saw a 50-percent increase in sales when the national advertising debuted, and now, a year later, he's still in the 30-percent range. Some stores, he says, saw sales rise as much as 75 percent.

The $5 price point is an important part of the new vernacular in the restaurant industry.”

Not all franchisees have seen that kind of success, though, says Diane Wehr, board chair for the NAASF.

"We didn't have the surge that some other markets did," she says of her seven Birmingham, Alabama, stores. "Nevertheless, we did great."

But the numbers were not consistent across the board, she says, adding that stores with captive markets, such as those on college campuses or military bases, probably didn't fare so well.

"There are people in Subway thinking $5 was not the right number," Mulligan says. "Some say we should have started at $5.99."

In Mulligan's hurricane- and recession-battered south Florida market, $5 seems to have been the magic number. While some Subways only offer a few sandwich varieties at the $5 price, Mulligan's store charges $5 for any footlong, no matter what type. He acknowledges that means some sandwiches, such as the Chicken Bacon Ranch, are discounted more than others but says it's worth it.

"I'm very happy with it," he says.

Mohammed says the best way to take advantage of a $5 price point, however, is to incorporate it as part of a menu that's tiered by price.

"What's important about Boston Market is that they have choices above $5," he says. "They can get people to trade up. So you get the price-conscious people, but you also have more options for people to spend more at your [restaurant].

Jamie Hartford is a regular contributor to QSRmagazine.com.