As Restaurant Chains Continue To Raise Prices, Consumers Are Starting To Notice

Food & Drink

One of the key narratives in the restaurant industry at the moment–and all industries, really–is pricing.

It’s a worthy discussion to be sure, as menu prices at limited-service concepts are up about 8% over 2020, while full-service restaurants are charging about 6% more. These increases come as operators navigate a confluence of cost pressures, from gas to commodities to labor, in an inflationary environment not seen in about 40 years.

So far, consumers have been willing to pay those higher prices, leading chains to test the boundaries as they work to protect their margins.

Chipotle’s menu prices are about 10% higher compared to 2020, for instance, with incremental increases throughout the past several months. Bloomin’ Brands’ pricing is up about 5%, noting that its previous 3% increase wasn’t enough to offset inflationary pressures.

During McDonald’s Q4 call, CFO Kevin Ozan said the chain’s pricing was up a little over 6% in 2021, “to deal with the 4% commodity price increases or food and paper increases, as well as labor inflation and the competitive environment.”

“We look at two primary things–one, how customers are reacting both from the customer research as far as how they view value, as well as whether they’re still coming from a transaction standpoint,” Ozan said. “And two, just understanding where we are versus the competitive environment and cost pressures. And so that’s the way we’ll continue to look at it as we go into 2022.”

McDonald’s increase is in line with food-away-from-home increases of 6.4%. It’s also in line with the competitive environment as several concepts have raised prices to manage pressures.

As far as whether customers are “still coming from a transaction standpoint,” however, we may be nearing a threshold. According to a new report from Revenue Management Solutions, visits to drive-thrus decreased in the beginning of 2022 versus 2021.

Most guests report at least one less weekly drive-thru visit compared to 2021. Four less visits a month per customer is certainly noteworthy. Perhaps more concerning, RMS’ research shows consumers’ intention to order at a drive-thru has slipped by 7% year-over-year.

This trend is likely a result of higher gas prices versus higher menu prices, however. Historically, higher gas prices have negatively impacted drive-thru concepts as consumers change their driving habits.

That said, consumers are also very much aware of higher menu prices overall and their perception of value has shifted accordingly. RMS’ data shows that 68% of consumers feel that restaurant prices are “higher” or “much higher,” while 63% find restaurant prices to be “too high.”

Don’t expect restaurant chains to stop pushing boundaries just yet, though. During Starbucks Q1 call in February, former CEO Kevin Johnson said the company has “taken pricing actions” in January and has “additional pricing actions planned through the balance of the year.” Wendy’s CFO Gunther Plosch said the company expects to price “north of 5%” in 2022.

“From what we are seeing now is we have not seen really any impact on the price increases,” Plosch said during the company’s Q4 call. “From a market share point of view, we gained traffic and dollar share in the QSR burger category in the fourth quarter.”

Indeed, nearly every chain is trying to convince investors they have pricing power–the sweet spot for value or brand equity–to raise costs even more. However, the actual sweet spot here for the industry may be that more consumers–83%–believe grocery prices are “higher” or “much higher” and they’re cutting back on staples accordingly. This perhaps intensifies the share of stomach battle as consumers weigh their tightened budgets.

That said, restaurant usage requires more of a conscious choice and the industry won’t be immune to trade offs as prices inch even higher. RMS data shows, for example, that 34% are ordering less expensive items from restaurants, while 30% are opting for less expensive restaurants.

In fact, two in five consumers believe they’re getting less value from restaurants now than they were just last month, with 82% reporting higher prices as the reason.

RMS predicts higher prices and inflation will affect restaurant traffic throughout the remainder of the year. Pricing will continue to be a risky balancing act for operators as a sizeable portion of the industry continues to recover from the Covid-19 pandemic. The omicron surge, for instance, impacted recovery at 80% of small restaurants, illustrating there is simply not a lot of room for traffic loss right now.

Articles You May Like

Wally Developing wallypower58
Kōloa Rum Company Prefers To Make Rum One Batch At A Time
A Win/Win/Win Approach To Farmland Ownership
The Ultimate Guide to Orlando’s Halloween Celebrations and Theme Park Events
Which is better — ChatGPT or a travel agent? Here’s our pick

Leave a Reply

Your email address will not be published. Required fields are marked *