Main Takeaway

Economic uncertainty and traffic headwinds raise the stakes for menu price increases.

State of the American Consumer

• December inflation of 3.4% ran hotter than expected (+0.2% vs forecast) driven by slow moving indicators - shelter (+6.2%) and car insurance (+20%)
  • Food away from home continues to remain above core inflation at 5.2% (source)
• Credit card delinquencies surpassed pre-pandemic levels while borrowers making the minimum payment climbed above 10% (source)
• Consumer sentiment swings with mixed economic data signals (source)
• Unemployment remained steady at 3.7% and the economy added jobs. (source)
  • However, 51% of job growth came from government and healthcare while other sectors lagged.

SPI’s Take: A mixed bag of consumer economic data warrants caution. The best way to separate signal from noise is to understand how these inputs impact your restaurant's price elasticity and customer demand.

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Industry News and Earning Results

• The restaurant industry is still experiencing traffic headwinds (-1.7% YoY) but check size continues to grow (4.5%) (source)
• McDonald’s announces a strategic pricing investment, “evaluating price at individual restaurant and menu item level” (source)
• Darden Restaurants Inc. saw a 1.3% decrease in sales comp driven by a decrease of 4.8% guest counts YoY (source)
• Price conscious retailers Costco and Dollar General reported positive traffic comps (source, source)
• 22 states increased their minimum wage in January 2024 (source)

SPI’s Take: Consumers continue to pivot towards value retailers. Restaurant brands are caught between margin compression and traffic headwinds. This unique pricing environment presents an opportunity for brands to innovate. ​
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This Caught My Eye (TCME)

Historically recessions hit lower and middle classes the hardest. A new term "rich-cession" describes a potential 2024 recession in which some analysts expect high income workers will feel the majority of the impact.

Regardless of a recession or "rich-cession," white collar workers are bracing for impact:

• The number of people quitting their jobs has declined past pre-pandemic levels to 2.3%
• 73% of workers said they will stay at their jobs, up from 61% in 2022

Meanwhile companies continue to cut costs:

• Spotify cut 17% of their workforce in December and CitiGroup will cut 20k jobs by 2026 (source)​
• 65% of executives said they had layoffs in 2023 and 40% expect layoffs to continue in 2024 (source)

SPI's Take: Changing jobs is inherently risky. White collar workers are hanging on to the stability at their current jobs waiting for some economic clarity.

The current environment makes high impact pricing decisions more important than ever.

A proactive, holistic pricing strategy will position brands for long term growth. A reactive strategy, in the face of margin compression, can do long term damage.

Schedule a free consultation on how to build a proactive holistic pricing strategy for the future here.

Thanks,

Patrick Daprile

​December 2023 Competitive Edge​

​SPI Website​

Email: patrick@strategicpricingintelligence.com