For restaurant operators facing record-high inflation this year, the question of pricing is a tricky one. Fortunately, new research by Revenue Management Solutions reveals how operators can find the sweet spot for pricing that works for both businesses and diners.
In the face of inflationary costs, raising prices is the first line of defense for restaurant operators. These businesses face severe bottom-line pressure due to lingering COVID concerns, food costs, supply chain troubles and dire labor shortages.
In response, quick service restaurant (QSR) prices have been steadily increasing, hitting a record 16.3% in August 2022. Consumers have taken the hit to date, but with wallet pressures looming, how much can QSR customers bear before breaking?
That’s the question Revenue Management Solutions set out to answer on behalf of its clients —some of the world’s largest QSR brands.
After analyzing in-store price increases by percentages year over year (Q2 2022 vs. Q2 2021) for 25,000 QSR locations in the US across numerous brands, RMS found that, yes, consumers have a breaking point.
“When price increases were between 10%-13%, traffic started to severely decline, negating some or all of the net sales benefits,“ stated Revenue Management Solutions Director of Consulting Services Scott Foxworth.
Chart 1 indicates the significant drops in traffic as prices hit the ceiling.
When looking at average price increases across observed locations, RMS found that most locations were beneath the threshold, with increases between 9% and 10%.
“Though the average price increases among observed brands fell below the threshold, the future is still uncertain,” said RMS Chief Operating Officer Mark Kuperman. “Some brands have an opportunity to increase margins with additional price increases, while others may have already hit the breaking point – even at a lower percentage increase.”
To determine a brand’s unique price increase ceiling, Kuperman recommends a careful analysis, by location, of the following pricing levers:
- Customer type
- Price by Item
- Magnitude and timing of recent pricing rounds
In a recent consumer survey, RMS found that the percentage of consumers trading down – ordering less expensive items or choosing less expensive restaurants – is rising. So too is trading out – of consumers that reported managing costs, 45% are ordering less often from restaurants.
“Consumers are beginning to perceive restaurant prices as higher, and about 1 in 3 believe they are getting less value from restaurants,” said Kuperman. “Brands will win if they can add to the value equation with great service, abundant value options and creativity.”
To download free sales, traffic and pricing trends from Revenue Management Solutions, go to revenuemanage.com/resources.
About Revenue Management Solutions
Revenue Management Solutions (RMS) is more than ever committed to supporting restaurants through these ever-changing times. Today, more than 50 major brands in 40-plus countries trust RMS. Its data-driven analytics and tech-enabled solutions optimize sales, menus and a brand’s financial health. RMS provides actionable insights to more than 100,000 restaurant locations worldwide to help them make informed business decisions that drive profitability and combat inflation and rising wages. The company holds five US patents on menu pricing and customer segmentation and supports ongoing academic research efforts. For more information on how RMS helps its clients, visit revenuemanage.com.