Main Takeaway

Restaurant brands must get creative in managing their value equation and regaining traffic as consumers adjusts to economic headwinds.

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State of the American Consumer

• March inflation ran hot for the third straight month rising 3.5% (source)
• Monthly inflation can misrepresent the long term impact felt by consumers:
  • 12-Month Inflation: car insurance +22%, vehicle maintenance +8.2%, and beef +7.6%
  • 3-Year Cumulative Inflation: all goods +17%, food away from home +20%, housing and shelter +18%, fuels and utilities +23% (source)
• Oil prices are surging pushing up gasoline prices nationwide (source)
• Consumer sentiment decreased in April and remains notably lower than what economic data would merit (source)
  • Sentiment could be lagging given headline CPI fails to include the “cost of money” which has spiked

SPI’s Take: Consumers adapt slowly to changing economic conditions. Restaurants need long term strategies to delight consumers rather than hope for favorable economic changes.

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Industry News and Earning Results

• Q1 QSR traffic decreased 3.5% while average check increased 4.5% driven by +4.0% in pricing (source)
• Darden Restaurants cited traffic softness in low income groups across all brands driving negative same store growth
  • SPI Note: Darden's strategy is to win market share by lagging CPI and competitor price increases (source)
• The marketing blitz continues across major brands as CEOs look to gain traffic momentum (source)
• California's AB1228 went live April 1st increasing labor costs by 25% for QSR/fast casual chains with 60+ locations
  • Early data signals brands increased prices as spending per transaction increased 3%-3.5% after April 1st (source)

SPI’s Take: Declining traffic trends combined with goods and labor cost increases continue to squeeze restaurants. Brands that manage their value equation through surgical price increases and targeted marketing will win market share. ​
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This Caught My Eye (TCME): Behavioral Economics

Daniel Kahneman, the father of behavioral economics, died on March 27 at the age of 90. Daniel was an American psychologist, a best selling author, and a Nobel Prize winner.

His research broke with traditional economic definitions of rational consumers. He demonstrated how human choice, bias, and psychology will make consumers behave irrationally in an economic sense.

Best known for his book, Thinking Fast and Slow, Daniel was a pioneer in understanding how businesses could nudge consumers into more lucrative purchases.

His work on prospect theory and price framing are applied widely across the restaurant industry as brands manage price, develop marketing materials, and analyze discount strategies.

SPI's Take: Pricing is a delicate balance of art and science. A world class pricing function uses both advanced analytics and behavioral economics to influence customer behavior and drive business results.

SPI delivers world class pricing solutions to our clients. If you are curious how we incorporate economic change data, advanced analytics, and behavioral economics into our software, please get in touch here.

Cheers,

Patrick Daprile

Subscribe to Competitive Edge here​

​March 2024 Competitive Edge​

Email: patrick@strategicpricingintelligence.com