If you ask a consumer what they think they paid for a menu item, there’s a chance they’ll recall a higher price than they actually paid. In ancient times (i.e., 2019), the theory was that if consumers thought restaurant prices were higher than they actually were, that signaled to operators that they could get away with raising prices (and revenue) with minimal impact on demand and traffic.
Technomic’s Q3 2022 survey of consumers revealed that, on average, consumers believe that restaurant prices have gone up 22% in just in the last 6 months, when in fact, food-away-from home has increased 8% over the past 12 months according to the Bureau of Labor Statistics.
In 2022, such a disconnect between perceptions and reality no longer points to an opportunity to take price and, instead, highlights an overall pessimism in the economy. Whether this is founded or unfounded is irrelevant. The real and psychological impact of prolonged high inflation – and the belief that prices will continue to rise – is impacting spending at restaurants, even for those in the higher income brackets.
As Rich Shank, senior principal at Technomic, noted in the inaugural Technomic's Take column, consumers are reaching the tipping point on their willingness to pay, so operators must carefully assess their pricing strategy. With little room left to maneuver on price, operators should take care to convey perceptions of value that resonate with their customers.
Now, if you’re thinking, “Value does not fit my brand.” Keep in mind that value has a personal meaning to consumers and does not always equate only to price nor require you to explicitly introduce a value menu. Consumers are now weighing more factors than ever when deciding if it’s worth trying or returning to a restaurant – all of which are part of their unique value equation.
If repositioning a large portion of the menu doesn’t make sense for your operation, adding new, innovative menu items provides a chance to message what’s valued by your guests and an opportunity to come in with a featured or limited-time offer item at a higher price to start.
If food prices continue to climb, this will give you some cushion to hold price on new items and an anchor for small increases on lower margin items. Perceptions matter and boosting perceived value to align with price, whether holding price static or raising them, is key to retaining and gaining customers in this environment.
Lori Rakoczy is associate principal with Technomic. She joined the company in 2018.
For more information, please reach out to Technomic at info@technomic.com or technomic.com. Technomic is a sister company of Restaurant Business.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.