Main Takeaway

Restaurant brands are executing on their strategy to win back consumers who continue to navigate economic headwinds.

State of the American Consumer

• April CPI was 3.4% roughly in line with expectations but well above the stated 2.0% target (source)
• US consumer sentiment’s 12.7% decline is the lowest reading in 6-months driven by western based consumers (source)
• The economy added 175,000 jobs in April missing expectations by 28% (source)
• US GDP grew 1.6% in Q1, missing the expected target of 2.2% (source)
• US retail sales were unexpectedly flat in April indicating that spending may be losing momentum (source)
• The personal savings rate continues to dip below 5% (source)

SPI’s Take: The GDP miss proves the economy is slowing. Restaurants must be hyper-aware of their value equation as consumers adapt to economic conditions.

Industry News and Earning Results

• April QSR traffic was down 1.6% YoY while prices increased 2.5% YoY and sales increased 1.9% (source)
• McDonald's partnered with Coca-Cola to launch a limited time $5 menu deal as they focus on affordability (source)
• Industry outlier, Chipotle, grew sales comp +7% with a 5.4% increase in traffic despite continued price increases (source).
  • Chipotle’s pricing strategy shift covered in February’s Competitive Edge is working
• Yum Brand's Taco Bell had positive sales comps of +1% while US KFC declined 7% and US Pizza Hut decreased 6%
  • Taco Bell launched new low priced menu items which appeared in ~33% of all transactions (source)
• Starbucks revenue declined in Q2 and has historically acted as an indicator for the rest of the economy (source)

SPI’s Take: Restaurants are executing a strategy to win back consumer traffic (e.g., menu innovation at Taco Bell and partnerships at McDonald's). Continuous measurement of your restaurant’s value equation is necessary to understand how your customers are adapting to an always evolving landscape. ​
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This Caught My Eye (TCME): Leaning into Tipping Fatigue

In a recent survey, 72% of adults say tipping is expected in more places now compared to 5 years ago. People often blame the increase on the pandemic or new technology like touch screen cash registers.

Tipping clearly helps restaurants pay their staff and incentivize better service, but consumers are split on tipping expectations:

• 3 out of 4 people think tipping has gotten out of control
• 64% of people believe tipping should be done when you feel like it instead of something you have to do
• 3 in 5 people think businesses are replacing employee salaries with customer tips
• Half of people surveyed say they leave a tip due to social pressure rather than good service

Dominos caught my eye with a clever marketing activation to navigate a sensitive situation.

They launched a "You Tip, We Tip" promotion where if customers tip their drivers $3 or more, they then receive a $3 coupon to use toward their next delivery order. This is a brilliant way to shift the tipping dynamic for the consumer, encourage order frequency, and increase driver compensation.

SPI’s Take: Tipping changes how a guest perceives the value of your restaurant and will negatively impact some customers. Measuring the magnitude of this impact is critical as restaurants continue to enable tipping functionality. ​
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SPI's "Always On" approach provides a consistent view into your customers' perception of value. Schedule some time here if you are curious how we measure exactly how much your customers are willing to pay.

Cheers,

Patrick Daprile

Subscribe to Competitive Edge here​

​April 2024 Competitive Edge

Email: patrick@strategicpricingintelligence.com