Restaurant chains reported sales growth in the third quarter. But more sales do not mean more customers.
In fact, industry watchers are noticing that foot traffic to restaurants has decreased in recent months. Indeed, as inflation eats away at consumers’ budgets, many have cut back on restaurant visits and eaten at home more often.
“You see this dichotomy where you see strong sales numbers, but at the end of the day it’s mostly…because of price increases,” said RJ Hottovy, head of analytics research at Placer.ai, which uses location data from mobile devices. to estimate visits.
Many restaurant chains “have overpriced their consumers,” he said. “They’re going to have to find ways to bring people back.”
Restaurants have increased menu prices over the past few years, so they get increased sales because each bill is higher, even if fewer customers buy their food or people come in less often.
Price increases weren’t enough to keep consumers out of restaurants at the beginning of this year. In January, foot traffic at fast, casual and full-service restaurants, where someone takes your order at a table, increased 20% to 31% from a year earlier, according to data from Place.ai.
But in August, when consumers had been dealing with high inflation for months, all categories were in decline. During that month, footfall at fast food restaurants fell 1.2%, at quick service restaurants down 1.7% and at full service restaurants down 4.7%. Fast food traffic rebounded slightly in September and October, but fast casual and full service traffic remained negative.
“We are seeing a noticeable impact on visitation trends due to inflation,” Hottovy said.
Consider the situation at Chili’s. Sales at chain stores open at least 18 months jumped 3.8% in the three months to September 28, Chilean parent company Brinker Internationa (EAT)l announced in November – an increase driven by higher prices.
Traffic, on the other hand, has plummeted 6.6% in the quarter, and that’s not expected to change anytime soon. The company expects foot traffic to be down mid-single digits for the remainder of the fiscal year.
“We believe some customers are responding to the tougher economic environment with fewer restaurant visits,” Brinker chief financial officer Joe Taylor said on a call from analysts discussing the results. He acknowledged that “we will likely see some traffic losses when it comes to the reduction side of the equation.”
Some consumers may turn to more affordable restaurants. But many are finding that even though grocery store prices are also rising, eating in is still cheaper than eating out.
Food is getting more and more expensive, and not just in restaurants. In fact, grocery store prices are rising faster than menu prices. In the year to October, without accounting for seasonal fluctuations, food prices jumped 12.4%, according to data from the Bureau of Labor Statistics. Restaurant prices rose 8.6%.
But the grocery store is usually cheaper than restaurant meals. And as consumers try to stretch their budgets, demand for groceries remains high.
Grocery volume sales “have remained fairly flat,” said KK Davey, president of thought leadership at research firms IRI and NPD.
“Restaurant meals cost three or four times more” than homemade ones, Davey said. Because of the cost gap and rising menu prices, “people aren’t eating out as much,” he said. “Inflation is clearly driving this behavior, especially among those who need to stretch their budgets.”
The drop in industry traffic “really has to do with the state of the consumer,” Wendy’s CEO Todd Penegor said on a November call with analysts on the company’s third-quarter results.
Customers “have shifted to more meals at home during the pandemic. It’s kind of stuck there because consumers have been a bit more cash-strapped,” he said.
“So what you’re seeing is a bit less frequency in the industry right now, which is putting a bit of a strain on traffic.”
Chili’s noted that its traffic dropped when it reduced discounts. But more offers do not necessarily mean more traffic.
“Traffic to [quick-service restaurants] with the most bids was down 1% in the quarter from a year ago, the same decline seen in the balance of [those] restaurants,” according to a November NDP report.
In October, a promotion worked so well that it increased restaurant traffic in the fast food industry as a whole from negative to positive, Hottovy noted, and it had nothing to do with the discounts: McDonald’s Cactus Plant Flea Market Box, aka the Adult Happy Meal.
“Earlier this month, through a collaboration with Cactus Plant Flea Market in the US, we tapped into one of the most nostalgic McDonald’s (MCD) experiences, enjoying a great meal when we were kids, and repackaged it to make it relevant to adult fans,” McDonald’s (MCD) CEO Chris Kempczinski said on an October call with analysts about the chain’s third-quarter results.
“It’s fair to say that this sentimental experience was a success, as 50% of our collectibles stock sold out in the first four days of the promotion,” he said. “These increased visits also generated the highest weekly digital transactions ever in the US sector.”
If other companies follow McDonald’s playbook, expect more nostalgic offerings.
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