Chipotle burrito.

What is the inflationary tipping point for fast food?

The question on the minds of restaurant operators with inflation still at its highest levels in four decades is where the ceiling might be. Is there a turning point? Revenue Management Solutions analyzed in-store price increases in percentage, year-over-year (Q2 2021 vs. Q2 2022) across 25,000 US express service locations, comprising eight brands primarily in chicken, burger, and Tex-Mex/chip. Mexican, to see if she can find one.

With overall list prices up 8 percent in August over the past year (7.2 percent for counter-service), RMS has been looking at whether – or by what percentage – the price hike had a waning effect, ultimately hurting traffic and canceling some/ All additional net sales have been recorded in recent months thanks largely to higher prices.

A clear point emerged. Mark Cooperman, chief operating officer of RMS, says net sales hit the highest threshold at about 13 percent. Beyond that, the traffic was negatively affected by the price increase that was implemented until the net sales started declining. Interestingly, in all restaurants listed, the largest share of locations increased prices by an average of 9-10 percent.

Revenue Management Solution Scheme.

All said, as a reaction, should quick-service restaurants scramble for a pricing round? “Not necessarily,” says Cooperman. “Factors such as customer type, location, price by item, volume and timing of recent pricing rounds all influence the price sensitivity equation. Traffic drops start at around 6 percent, indicating that brands may lose customers before they reach the ideal 13 percent The key is to do a thorough analysis by location either through RMS or in-house.”

Read more:

The state of restaurants: demand, price and loyalty race

Inflation pushes restaurant customers to seek value

As for Copperman’s last point, there aren’t many brands that don’t take the price. Necessity has evolved into a strategy. “Analysis of the check average, customer type, location, price by item, shared ‘packages’, size, and timing of recent pricing rounds, he says of the data operators they should publish in doing so.” For example, in packages, If a brand takes a price on items that are frequently purchased together [think coffee, breakfast sandwich and a side], the customer is likely to notice the overall increase in checks even if each item has a relatively small additional price increase. In timing/amount, if a brand doesn’t take the price for the duration of the shutdown, for example, but is now getting a 9 percent increase, the customer will notice, even if it’s a 9 percent increase in the “acceptable” window mentioned in the analysis.

While RMS was able to detect a tipping point, it doesn’t exactly paint a picture of what’s coming next. There’s been a clear and obvious value boost between chains lately as they keep the low-income consumer engaged. And a lot of it flowed through rewards and loyalty, with deals being offered for in-app subscriptions and ongoing data swaps. Deals like free onion rings for June from Burger King with $1 purchase, available to Royal Perks members. Similarly, on September 18, McDonald’s promoted a free double cheeseburger with a $1 purchase on its app.

Arby’s recently launched a daily $2 for $7 value menu, suggesting that the bar in these value packs could go up as the price is re-set.

Either way, it’s hard to say how high this is. “It’s hard to predict,” Cooperman says. “Some brands still have pricing opportunities in excess of 13 percent, while others are already limited even in the higher single numbers. What we can say, based on our analysis of observations across the industry, is that if the price increases year-over-year above 13 percent percent, traffic is so negatively affected that net incremental sales start declining.We saw a significant drop in performance with price increases of more than 15 percent.Net sales were up 2.9 percent in the “more than 15 percent” category, but traffic Traffic is down 10.2 percent.”

Cooperman believes express services are preparing for a new value era. More than just the channel it comes through, but also how it is packaged. “In our notes, brands are looking at ‘plentiful value’ items like value packs. They’re also looking at à la carte options that indicate pricing, though prices are higher than we’ve seen in the past — we don’t think we’ll see a 59-cent cheeseburger again. , for example. “Many brands are innovating on what they put on price a la carte menus, which means they create new menu items specifically for this purpose using ingredients/labor that is more profitable than simply lowering the price of existing basic menu items.”

Consumer surveys indicate that diners adjust their habits to inflate. According to Per Bluedot data, 91 percent of respondents said they recognized price increases at restaurants, and 73 percent said they use value menus more often. Half said they reduced their visits to sit-down restaurants, while 47 percent said the same coffee concepts, and 43 percent of takeaway restaurants. The figure was 46 percent for fast food. Another 37 percent indicated that they were ordering less expensive items and 32 percent were simply ordering fewer of them.

However, broadly speaking, industry net sales in August, according to RMS, were 5.2 percent, year on year, even as traffic declined 4.4 percent. The check was 10.1 percent higher in August.

Black Box Intelligence found similar baselines, with same-store sales rising 5.3% last month (the strongest number since March) along with traffic declining 1.9% – for the sixth straight month in the red.

Rewards Network data showed industry-wide restaurant sales rose 17 percent in August compared to 2019. Once again, the result was largely driven by the fact that the average ticket was 26 percent higher. Traffic was less than 7 per cent.

#inflationary #tipping #point #fast #food

Leave a Comment

Your email address will not be published.