Bargain hunters are driving value-focused promotions from Target, McDonald's, and others.

• The intense competition among retailers is evident in Target's weak quarterly results, as they strive to offer the lowest prices possible.
• This week, the big-box retailer announced price cuts on thousands of items.
• Aldi and Walmart have also stepped up efforts to attract a bargain-hunting shopper.

Its weak quarterly earnings highlighted the reason it reduced prices on numerous household staples: it is facing difficulty in attracting price-sensitive customers.

The discounter is not alone.

American consumers are becoming more selective with their spending due to sustained inflation, which has squeezed their budgets for nearly three years. Target's first-quarter results on Wednesday reveal this, as the company's declining sales illustrate the intensified competition among retailers and even some restaurants to offer the lowest prices.

In April, Aldi reported a 45% increase in year-over-year sales of its "rollbacks," short-term deals on specific items. Additionally, the discounter launched a new premium grocery brand with most items priced under $5. Recently, Aldi reduced prices on over 250 items, including chicken, steak, granola bars, and frozen blueberries. Furthermore, even is introducing a limited-time $5 value meal in late June as some fast food diners express dissatisfaction with prices.

On Monday, Target announced that it has already reduced prices on approximately 1,500 items and plans to do the same for thousands more this summer. Many of these cheaper items are essentials, including milk, peanut butter, and diapers.

Lowering prices or offering deals by major grocers and restaurants could ease the burden on consumers, who are facing rising prices of more than 3% from the previous year. This could also provide the Federal Reserve with the confidence to lower interest rates. However, businesses may have to cut back on labor costs to make up for the revenue lost from lower prices.

During Target's earnings call on Wednesday, analysts inquired about the rationale behind the price cuts and whether Target or its vendors were responsible for covering the costs. Although the company did not disclose the specifics of the cost split, Chief Growth Officer Christina Hennington stated that vendors are aware of Target's dedication to passing on savings to customers in order to boost sales.

Despite the consumer slowdown, some businesses have managed to retain customers by maintaining or increasing their prices, such as Chipotle and Sweetgreen.

Target vs. Walmart

Target's sales of discretionary merchandise, such as clothing, dropped year over year, while sales of higher frequency items like groceries and paper towels also decreased. This may be one of the reasons why Target is joining the race to cut prices.

Some customers may be making those purchases at Walmart instead.

In an interview with CNBC, Walmart CFO John David Rainey stated that the company is gaining market share from higher-income households. He also mentioned that some consumers are turning to Walmart for meals due to the high prices at fast food chains.

He stated that we have an increasing number of returning customers and a growing base of new, previously untargeted customers.

During Target's earnings call, analysts posed challenging queries regarding whether the retailer is losing customer base due to perceived high prices or is viewed as too expensive, except during sales promotions.

Target is prioritizing value as it strives to regain growth, according to CEO Brian Cornell.

The company aims to ensure that America recognizes Target as a top shopping destination with excellent value, whether through in-store or digital engagement, and is on track to reverse sales declines in the second quarter, as stated by the CEO.

During the earnings call, Hennington stated that customers have responded to Target's price cuts, particularly in the tech accessories category, where they noticed a lack of low-priced options such as charging cables and phone cases.

In February, a new private brand called Dealworthy was launched, which provides Target's lowest prices on essential items such as laundry detergent and paper plates.

The introduction of the right price points in Dealworthy led to immediate notice by guests, resulting in acceleration of unit and traffic in those categories. This is how we conduct business, she stated.

It'll soon run a similar play with seasonal items, she said.

Customers can anticipate lower prices on popular pool noodles, floats, and coolers following Target's thorough examination of last year's summer assortment.

— CNBC's Amelia Lucas contributed to this report.