As restaurants have been raising prices aggressively over the past couple of years, they’ve put themselves in danger of losing whatever value consumers placed on them.
Lisa Miller, a consumer strategist and the author of “The Business of Joy,” said at the Restaurant Finance and Development Conference that just 31% of consumers in a survey said they felt their last restaurant visit was “worth it.”
More to the point, 52% of fast-food customers—and 49% of full-service customers—are getting “sticker shock” when they visit a restaurant. “We’re not delivering the experiences and occasions they want,” Miller said.
Fast-food prices in particular have held steady at higher rates than prices at full-service restaurants or even grocers and are now rising at nearly twice the rate of inflation.
Prices at limited-service restaurants have increased 6.2% over the past year. By comparison, prices at full-service restaurants are up 4.3%. The inflation rate was just 3.2% over that period. And food at grocery stores was up 2.1% over that time.
Perhaps more to the point: Fast-food prices over the past four years are up 29% compared with October of 2019. That means a $30 meal at a fast-food restaurant four years ago now costs $38. That doesn’t include the tip prompts customers are far more likely to get now than they did four years ago.
Industry traffic was down 2.5% in October, according to the data firm Revenue Management Solutions. Industry executives have lamented the lack of traffic, and lenders at the conference likewise noted that getting traffic in a positive direction was key for them to get financing.
“Everybody has same-store sales growth because they’re raising prices,” Todd Maldonado, managing director with BMO, said at the conference. “What we care about are transactions.”
Brands have been pushing for more traffic, but those efforts are more muted, limited to specific items such as the Dollarita at Applebee’s, or to customers on mobile apps. But many brands have increased the prices of their value offers and some have eliminated them, as Wendy’s did with its 4 for $4 menu, at the behest of franchisees. Domino’s likewise raised the price of a $5.99 value menu to $6.99.
The strongest restaurant chains don’t push value, however, said Neil Culbertson, founder of the consulting firm Growth Partners. He noted chains such as Jersey Mike’s, Chipotle, Texas Roadhouse and In-N-Out that have “built value based on the brand.”
To be sure, customers do want affordability—40% of quick-service customers said that affordability would make their visit “worth it,” the top among 10 selections they offered, just ahead of “consistent food quality” (36%) and special offers and discounts (34%).
Some of the traffic-building initiatives companies do offer were not as popular, however. “Prompt and efficient service” was selected by just 21%, and “easily customize my orders” was selected by 20%.
Miller said that customers will pay for restaurants that give them what they want. “People are willing to pay,” she said. “It just has to be worth it.”
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