Picture it. Chicago in 2018, a stranger sits next to me on the L and says, “Imagine yourself five years from now. What news will most anticipate reading every month?” Without hesitation, I reply, “Cheap Trick tour dates announcements.” “Wrong!” says the stranger, “It’s the U.S. Bureau of Labor Statistics’ Consumer Price Index report. Well, there will also be a couple of years where you’re obsessed with COVID-19 rates and the Jobs Report, but in 2022 you’ll be adding a monthly calendar reminder to check inflation numbers.” And with that bit of morning crazy-talk, I would switch L cars.
That stranger that I just invented was right. I do religiously comb through the inflation report every month, looking for a sign that inflation is easing in a meaningful way, especially when it comes to food-away-from-home prices. While overall inflation is easing, albeit slowly, menu prices increased again in January, up +0.6% after a +0.5% increase in December (i.e., they’re trending the wrong way).
What will this mean for restaurant traffic going into 2023? Are we likely to see a decline again as we saw in the fall when inflation was at its peak? Even though average wages haven’t caught up to inflation, it’s unlikely that consumers will continue to reduce visits, and instead are likely to increase visits and basket size by purchasing add-ons that they may have cut out since inflation soared. In fact, the U.S. Census Bureau reported a jump in eating and drinking places’ sales volumes from $89 billion in November and December to $95.5 billion in January 2023.
Why this jump in sales now despite continued inflationary headwinds in the restaurant space? In addition to weather, as Jonathan Maze wrote about this week, and restaurants’ efforts to lure back customers with enhanced loyalty programs and value promotions, which operators should not yet pull back on, the answer is partially psychological.
Consumers are getting used to the higher menu prices and have already baked them into their decision-making. According to a recent Technomic survey, while there’s been a net decline in visits over past few months, about 40%-50% of consumers say their ordering has stayed the same. However, the degree of which depends on whether you are dining off- or on-premise. Kevin Thacker, manager of research and insights at Technomic reported that “in our research, takeout ordering has shown the most stability, while dine-in is most at risk for a decline, and that’s likely because of higher menu prices as well as tipping.” What does Kevin the consumer say? “Personally, I’ve started going to restaurants more often than I was a couple of months ago, mostly for takeout.” Why the change? “I feel like I’ve gotten used to the menu prices,” Kevin explained.
We’re seeing more evidence of prices getting baked into the psyche when we asked consumers about their visits over the next few months. They’re becoming more optimistic and expect their foodservice usage to be the same or a net positive.
To get another perspective on the future, I asked Mat Thies (aka Hubby Mat) if he thought he’d be dining out more and why? “Yes, because the weather is going to be getting better.” We’re in Chicago, so this checks out. But does it have anything to do with inflation and expecting prices to come down? “No. You can’t put the toothpaste back in the tube,” said Mat. “No one’s going to lower prices. I’ve just gotten used to them. And I’m becoming more aware of specials and loyalty rewards. I buy four salads and the fifth is free? Sign me up.”
Since it seems that consumers are getting used to the high prices and are less likely to cut back their restaurant ordering, can I pay less attention to the monthly CPI reports and more attention on when Cheap Trick is playing near me? For now, I’ll continue to multitask. They’re playing April 22, 10 days after the March 2023 inflation numbers come out.
For more information on Technomic’s upcoming Loyalty and Discounting Strategies study, click here or reach out to Technomic at info@technomic.com or technomic.com. Technomic is a sister company of Restaurant Business.
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