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June 5, 2023 :During the Great Recession, consumers sought out bargains and opted for cheaper dining options to cope with financial constraints. However, a recent report from AlixPartners reveals that as inflation continues to squeeze their budgets, consumers are now more likely to reduce their restaurant visits altogether.
The cost of dining out has been steadily increasing for over a year. In March, for the first time since mid-2021, when inflation started accelerating, prices for meals eaten outside the home rose faster than grocery store prices. According to the Bureau of Labor Statistics, prices for food away from home surged by 8.6% in April compared to the same period last year, while prices for food at home climbed by 7.1%.
In response, consumers have been cutting back on their restaurant visits. Data from Black Box Intelligence indicates that in April, traffic at established restaurants dropped by 3.5% compared to the previous year. A survey conducted by AlixPartners in December revealed that 74% of respondents planned to reduce their dining out habits, with only 39% considering opting for less expensive restaurants.
AlixPartners Managing Director Andrew Sharpee noted that historically, people would trade down to lower-priced establishments while maintaining the same frequency of dining out. However, consumer behavior has evolved since the financial crisis, particularly influenced by the pandemic, which has made many individuals more comfortable with cooking at home. Sharpee predicts that consumers will now allocate their restaurant spending to experiences that cannot be replicated at home rather than simply shifting from casual dining to fast food.
The changing landscape is leading to winners and losers across the restaurant industry. Young consumers, in particular, are reducing their takeout and food-delivery orders but still prefer dining in person. Sharpee also highlighted that delivery has become too expensive due to associated fees and higher food prices imposed by restaurants to offset commission fees. Some companies, such as First Watch Restaurant Group, have noticed a decline in orders through third-party delivery services.
In response to inflated delivery prices, DoorDash is favoring eateries with comparable in-store and delivery pricing by providing them with more prominent placement in its app. The impact of shifting consumer spending patterns has been evident in the quarterly earnings of various restaurant companies, with El Pollo Loco, Domino’s Pizza, and Bloomin’ Brands (the parent company of Outback Steakhouse) reporting a decline in U.S. traffic.
However, Starbucks reported that its customers have not been trading down or reducing spending at their cafes, and Restaurant Brands International, the parent company of Burger King, stated that it hadn’t experienced any significant shifts in its business due to inflation.
Restaurants that have observed changes in consumer behavior are adjusting their strategies accordingly. Chipotle Mexican Grill, for instance, plans to pause price increases unless inflation resurges. Similarly, Brinker International, the parent company of Chili’s, is phasing out its Maggiano’s Italian virtual brand, which was exclusively available for delivery orders, while Noodles & Company is emphasizing its value offerings.
