The restaurant industry has become a symbol of the current inflationary environment. Price increases at chains like Chipotle and Starbucks have generated considerable attention among the mainstream media as signs of the higher prices facing consumers.
But consumers seem fine paying these prices. Just about every restaurant operator has said in recent weeks that they’ve seen no pushback from consumers when they increased the prices of burgers or iced coffees.
On Tuesday, for instance, Chipotle Mexican Grill CEO Brian Niccol told investors that the company has raised the prices of its burritos and other menu items 10% over the past year. “It’s really the last thing we want to do,” Niccol said, according to a transcript on the financial services site Sentieo. “We see no resistance to date with the levels we’re currently at.”
Other chains have echoed similar sentiments. “We generally have not seen a whole lot of pushback from consumers,” Dan Accordino, CEO of Burger King operator Carrols Restaurant Group, told investors last month.
“We’ll keep a close eye on cost and pricing,” McDonald’s CEO Chris Kempczinski said last month. “But right now, so far, it’s been received OK by customers.”
Fast-food menu prices are up 8% over the past year, according to federal data. To those of us who’ve seen this business turn on a 50-cent increase in the price of a gallon of gas, the lack of pushback on such higher prices is surprising.
At the same time, however, consumers simply do not look at value as much as they did before the pandemic. Take a look at some of the below data from Technomic, Restaurant Business sister company, which surveyed consumers and simply found less focus on price.
Consumers are focused less on price
Source: Technomic
There are several reasons for the lack of apparent price sensitivity. For one thing, consumers are making more money these days. But it’s the type of consumer that is making more money. “A lot of that wage growth happened at the lowest ends of the income spectrum,” said Robert Byrne, director of consumer and industry insights for Technomic.
According to U.S. Bureau of Labor Statistics, the highest wage growth has come from the lowest quarter of wage earners. This group also benefited most when the government started sending out $1,400 checks.
“They’re potentially the most price-sensitive end of the income spectrum,” Byrne said. “If I’m making more per hour at my employer, and my shift hours have increased and I’m working more overtime, then that is going to make me feel wealthier. It’s more tolerable.”
Meanwhile, prices for groceries are also increasing. Food-at-home prices are up 6.5% over the past year. When grocery prices rise at levels similar to those of restaurants, consumers often shift to restaurants.
In addition, many younger consumers are willing to spend more for things like delivery, Byrne said, which could be a symbol of the lack of price sensitivity.
There is one last element that Byrne mentioned: Consumers are using restaurants differently.
While sales at many restaurant chains have more than recovered from losses during the pandemic, traffic isn’t even close to a full recovery. Consumers when they dine out are buying more at a time. And they’re getting more expensive items. But they are not coming in as often.
“Traffic is down, but sales aren’t,” Byrne said. “They’re willing to spend more per visit because they’re not making as many visits.”
It remains to be seen how long this lasts. Government stimulus programs have fueled some of this spending—though Byrne said as people return to work in a post-pandemic environment, they could come back to higher wages that keep spending up.
Maybe these soaring prices for everything ultimately cause people to cut back. Or maybe they push us into a recession that ultimately forces the issue. For now, however, restaurants are apparently free to maintain their margins by charging their customers. It’s definitely a different world.