Financing

The owner of Papa Murphy's says consumers are getting more demanding

The CEO of MTY Food Group said customers expect more from their restaurants. But they’re not demanding more discounts yet.
Papa Murphy's
MTY Group, which operates Papa Murphy's and other chains, says consumers are less willing to overlook problems. | Photo: Shutterstock.

With less money to spend, consumers are getting more demanding when they eat out, less willing to tolerate something that doesn’t meet their expectations.

That, at least, is according to Eric Lefebvre, the CEO of the Montreal-based restaurant chain collector MTY Food Group, the owner of chains like Papa Murphy’s, Cold Stone Creamery and Famous Dave’s, along with dozens of other concepts in the U.S. and Canada.

“During the last few months, we’ve noticed that consumers have become more demanding for their hard-earned dollars in the current environment,” Lefebvre told analysts on Wednesday, according to a transcript on the financial services site Sentieo/AlphaSense. “The increase in prices over the last three years has resulted in higher expectations, and our brands have to elevate their game to be relevant in this market.”

When asked whether that means consumers are shifting to discounts, Lefebvre said that wasn’t the case. “The consumer is still there for us,” he said. “The consumer is more demanding in terms of the experience we’re going to deliver to them.”

In other words, when speed or cleanliness are not up to snuff or the food isn’t prepared right, consumers will shift their spending elsewhere.

“The customer doesn’t throw money at any restaurant anymore,” he said. “The customer will be a little more demanding.”

Restaurant prices have taken off since the pandemic, as chains and their franchisees have increased menu prices to match higher prices for food and labor. Restaurant prices rose 8% or more for much of 2022 and even after easing in recent months remain 6.5% higher than they were a year ago.

Given that they are paying such higher prices—not to mention tips at many brands where they hadn’t tipped before—consumers expect more when they dine out and will quickly shift spending elsewhere.

In addition, consumers are typically tight with spending during periods in which they have less cash to spend overall. They will spend when properly enticed to do so, but it’s less automatic than it is during times when the economy is soaring.

MTY’s brands operate well over 7,000 locations, mostly in North America. More than half of those locations are in the U.S.

Lefebvre said that competition has yet to push heavy discounts in the current environment. “Competition is mostly on experience and food and not necessarily on extreme discounts,” he said. “For the moment, the competitive landscape is where we like it to be. We like to compete on our menu. We like to compete on experience. We’re not necessarily prepared to go into deep discount type of competition. So far, the market seems to be avoiding that.”

California is one potential challenge on the horizon. The state is expected to raise the minimum wage in the state to $20 an hour for fast-food restaurant chains, a substantial increase over the current rate. Many of MTY’s brands have a heavy concentration in the state.

Papa Murphy’s operates 139 of its 1,168 restaurants in California, according to Technomic. Wetzel’s operates nearly one-third of the 362 locations it operated at the end of 2022 there, while Cold Stone Creamery has 181 of its 912 locations in the state.

“This is definitely an area of concern for us,” Lefebvre said. “California is an important market for us and for corporate stores and franchisees.”

Still, he added, “It’s not the first time we’ve seen a shock like that. We’ve seen that in other jurisdictions before, including California. It is what it is.”

He said the brands are working to be more efficient and is working with suppliers to be more efficient inside its restaurants.

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