Consumers started trading down at the end of 2022 in response to higher menu pricing. Now, they’re taking things up a notch – more aggressively seeking deals and discounts to use restaurants.
New data from Circana finds that consumer use of deals at restaurants grew by 8% year-over-year in Q1. Consumers’ inflation fatigue is also evidenced by April’s slowing sales growth – the industry’s weakest performance since July 2022 and its second-softest month of growth in over two years, according to Black Box Intelligence.
In other words, consumers are proving they simply don’t want to pay as much for eating out as they have been doing for quite some time, including for the traditionally lower-price point quick-service segment, where menu prices remain 8.2% higher over last year.
According to Circana, most of the increase in Q1 deal usage (84%) came from QSRs, which represent most of the total foodservice traffic. Visits to QSRs increased by 2% and deal visits by 7% in the quarter over last year. Full-service restaurant traffic declined by 1% in the period, but visits on a deal were up by 4%.
Although 73% of all foodservice visits are not on a deal, those visits were flat in the quarter compared to the visits on a deal growth. Broken down, “buy some, get some,” and coupon deals were among the most popular deal types, growing 13% and 18%, respectively, compared to a year ago. Discounted price deals increased by 8% and daily specials grew by 6%. Combined item specials declined.
The increase in deal visits helped to grow total commercial foodservice visits by 1% over a year ago, a traffic gain after four consecutive quarters of flat or declining growth. But they illustrate that consumers’ remarkable resilience in an uncertain environment may be starting to fade.
It’s a bit of a narrative from Q1 overall, which was largely positive for public restaurant brands – exceeding most analysts’ expectations, in fact. But as traffic becomes a bit more discerning, that’s the metric to home in on, as comp sales lapped an anomalous Omicron surge in early 2022.
Ian Borden, CFO of industry bellwether McDonald’s, painted a detailed backdrop during his company’s Q1 call in late April, stating that consumers’ disposable income is under more pressure and they’re moving to more affordable options. Sure, concepts like McDonald’s tend to benefit from such an environment, but even McDonald’s customers are starting to pull back a little. CEO Chris Kemczinski said the company is experiencing a “slight decrease” in units per transaction.
“So, things like did someone add fries to their order, how many items are they buying per order, we’re seeing that go down in most of our markets around the world slightly, but it’s still going down,” he said.
That means operators are having to get creative to maintain consumers’ business as they tighten their belts. In lieu of upfront discounting, many are doing so through loyalty programs; Circana found that loyalty rewards and points redeemed at restaurants during Q1 increased by a whopping 26% year-over-year.
Still, what used to be considered a “value” for consumers last year may be different now, and operators are having to find their sweet spot to maintain sales and transactions without compromising margins even further.
“Last year, deal traffic was flat as rising costs deterred operators from offering deals, and the deals offered weren’t a value from a consumer perspective,” David Portalatin, Circana food industry advisor, said in a statement. “Although inflation is now moderating, food prices are up 7% from a year ago, and consumers are looking for deals that will offset higher prices. Operators are using deals to drive more traffic.”
Who knows what Q2 results will look like with those sales, traffic and margin numbers as the consumer remains pressured. There may be a few reasons for optimism. One, gas prices are contextually low right now – a full dollar lower than a year ago, in fact. Most experts expect those prices to continue this summer, according to the New York Times.
Two, AAA expects over 42 million Americans to travel this summer, which would flirt with record levels set before the pandemic. Traveling consumers bode well for restaurant businesses.
But, as has been the case for quite some time now, the outlook sort of depends on who you ask. The University of Michigan’s U.S. consumer sentiment index was at a six-month low in May, for instance. And, Datassential finds that about one-third of consumers plan to dine out less over the next month, while half plan to maintain their current restaurant spending habits, as reported by CNBC.
As for that bellwether McDonald’s? The company’s outlook also seems mixed.
“Broadly, there is a lot of concern around that inflationary pressure and … when we expect that to flip and be more benign,” Kempczinski said during the company’s Q1 call. “It certainly is going to improve. Our expectation is it’s going to improve through the balance of the year.
“But it’s still going to remain elevated versus what we’ve historically been accustomed to.”
Contact Alicia Kelso at [email protected]
