In tough economic times, it’s common for restaurant-goers to shift some of their spending from higher-priced, full-service places to lower-priced, quick-service brands—a behavior known in industry-speak as “trading down.”
During the Great Recession, for instance, visits to sit-down restaurants declined, while fast-food traffic stayed the same, according to federal data. In the thick of the downturn, McDonald’s sales increased, and the chain emerged from the recession as one of the period’s big winners.
But in today’s topsy-turvy economy, which has seemed to defy expectations at every turn, the time-worn tradition of trading down is being turned on its head. As menu prices continue to climb, fast food is losing its reputation as a cheap meal, leading consumers to shift spending to grocery stores and even full-service restaurants that offer better quality and service for a similar price.
“In the past, fast food has been kind of the beneficiary of economic challenging times and inflationary times,” said Lisa Miller, a consumer insights specialist who surveys foodservice users every month. “But with the way they’ve increased prices, it’s just gotten really, really bad.”
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The price hikes are intended to offset the rising cost of food, labor, utilities and rent. But consumers, who are also feeling the burn of widespread inflation, are taking note: Many no longer view fast food as all that great of a deal.
In 2018, 26% of consumers said they felt quick-service restaurants were affordable, according to survey data from Technomic. Twenty-three percent said the same of fast casual, and 20% said so of casual dining.
Six years later, fast food’s affordability advantage has waned considerably. Year to date, 22% of consumers said QSRs were affordable, compared to 21% for fast casual and 20% for casual dining, per Technomic.
“That leadership role that QSR has historically had is gone,” said Robert Byrne, director of consumer and industry insights for Technomic. “It has eroded to the point where it’s essentially meaningless.”
Chains that have traditionally been thought of as sources of cheap eats have seen even larger declines on affordability recently. At McDonald’s, the percentage of consumers who ranked it as affordable has fallen 4 points over the past three years, according to Technomic. Taco Bell has seen a 5-point decline, and Burger King is down 6.
Now customers are beginning to vote with their feet. Grocery stores, where year-over-year inflation eased to the historical norm of 1% in June, have been perhaps the biggest beneficiary.
According to Miller's survey of consumers last month, 35% reported shifting some restaurant visits to grocery store foodservice, an increase of 5 points from June. Sixty-three percent, meanwhile, said they were trading down to fast-food burger chains, a decline of 6 points from the prior month.
Overall, the number of consumers who said they dined out in June fell 3 points from the month before, to 64%.
“There’s been so many changes, and the prices are increasing, and people are being asked for tips. And so they’re just saying … ‘I can’t afford to pay $15 for a meal at McDonald’s,’” Miller said. “Who’s winning? Convenience stores and foodservice grocery stores.”
That aligns with Technomic forecasts, which show supermarket foodservice sales are on pace to increase 1.6% in 2024, compared to just 0.1% growth for restaurants.
It comes as grocers and c-stores are improving the quality and selection of their hot food, which often costs less than it would at a restaurant.
The average price of a c-store chicken sandwich, for instance, is $4.90, while the QSR version comes in at $9.11, according to Technomic data. A cheese pizza, meanwhile, can be had for $6.63 at a c-store, while a quick-service pizza place will charge just over $13.11.
“[C-stores are] in the enviable position that they are just so well-suited, particularly compared to quick-service restaurants,” said Donna Hood Crecca, principal at Technomic, during the C-Store Foodservice Forum in Chicago last month.
There could be another, less obvious beneficiary of consumers’ shifting food budgets: full-service restaurants, which may now appear to be a bargain relative to their counterparts in fast food.
With QSR prices where they are, consumers are now asking themselves, “Why would I trade down?” Byrne said. “I don’t have to. I can justify the couple bucks more at full service, get waited on, maybe order from the bar if I want.”
Some full-service brands have jumped at the chance to exploit this proposition. Chili’s Grill & Bar, for example, has gone head-to-head with fast food with its $10.99 3 for Me meals and the Big Mac-like Big Smasher.
The strategy appears to be working: In the first quarter, Chili’s saw sales growth across income brackets, even as other chains—including McDonald’s—reported fewer visits from lower-income consumers.
Technomic data shows that the chain is pulling customers from casual-dining competitors like Applebee’s, but also from limited-service brands, including Chipotle, Wendy’s, and, yes, McDonald’s.
Other full-service brands are offering similar bargains. Perkins last week unveiled breakfast bundles starting at $4.99, for instance, and Outback Steakhouse is currently advertising a three-course meal for $14.99. Both seem designed to offer elevated fare at a fast-food price point.
At Perkins, “you can dig into America's best value breakfast any time you want, and for less than the price of a drive-thru latte,” the chain boasted in a press release.
“We’ve seen that sort of direct competition between casual dining and QSR in a way we’ve never seen it before,” Byrne said.
Of course, fast-food chains have spent the summer rolling out meal deals of their own in hopes of winning back those price-sensitive guests. They have also eased up on pricing. Both moves seem to have yielded better traffic: In the second quarter, QSR traffic declined 2.3%, an improvement from the 3.5% in the first quarter, according to data from Revenue Management Solutions.
Still, it remains to be seen how effective those deals will be long-term, as most are being offered only for a limited time.