Restaurant sales were all but wiped out in late March and early April of last year before they began gradually recovering, finally hitting 2019 levels on a national basis in May of 2021. By all accounts, that sales performance has continued in the weeks since.
According to the most recent update from Black Box Intelligence, for instance, two-year restaurant same-store sales have risen for 16 straight weeks “with no signs of slowing.” Sales growth has been stronger in recent weeks than it was in the two months before that.
Much of this has been built on a foundation of higher prices and a shift toward more expensive premium items.
Consider May’s sales data. Sales that month were 4% higher than they were in the same month two years earlier, a nice quick recovery for the industry. Yet prices were 7% higher than they were two years earlier. In short, at least some of the recovery has been masked by customers simply paying more than they did before the pandemic.
To be sure, that’s still a strong recovery. Yet the industry has put any value focus in the background while it courted more profitable customers willing to pay more for their burgers and tacos. And while same-store sales remain strong as a result of this more premium focus, traffic remains an issue.
According to Black Box, for instance, traffic remains below 2019 levels. Much like the industry’s sales recovery, it remains unclear when customer count will pick back up.
In all fairness, now is clearly not the time to focus on traffic-generating value offers. For one thing, customers are clearly OK paying these high prices. They’ve ordered delivery at still-elevated rates. And they’re clearly willing to pay more for a Big Mac than they were in May of 2019. They are still making bigger orders and buying more premium items, still more flush with cash from stimulus and from savings.
And costs are going up. Restaurants that can find enough staff—and most can’t—are paying through the nose to get it. They’re paying higher wage rates and more benefits, including tuition and childcare. Food costs are also going up, and potentially by quite a bit, while rent and construction costs are soaring. Forcing any sort of value war in the name of customer count would not be a smart move. It’s more expensive now to run a restaurant than it was before the pandemic, and prices should reflect that.
And there is something to be said for this shift in focus from courting as many customers as possible to focusing on a fewer number of customers willing to pay up for quality and speed and convenience. By shifting to a customer-driving value promotion restaurants run the risk of slowing down service, cutting back on quality or both.
At some point, however, one thinks that customers will cease paying such prices, especially at fast-food chains or at casual dining concepts. Costs are going up in a lot of places outside of restaurants—the consumer price index rose more in a single month in June than in any month since 2008, for instance. Gas prices are up 44% over where they were a year ago. Utility costs are up 15.6%. People are paying more for used cars and fuel oil and transportation.
Savings only lasts so long, and stimulus payments run out. Those costs could force people to begin rethinking the prices they’re paying these days at restaurants. They may go less often. And that recovery operators are enjoying so much slows down.