Chain restaurants report increased sales in the third quarter. But more sales doesn’t mean more customers.
In fact, industry watchers have seen a decline in foot traffic to restaurants in recent months. That’s because as inflation eats into consumers’ budgets, many are cutting back on restaurant visits and eating at home more often.
“Where you see strong sales numbers, you see that dichotomy, but at the end of the day it’s mostly due to … price increases,” said RJ Hottovy, head of analytics research at Placer.ai, which uses location data from mobile devices. evaluate trips.
Many restaurant chains “have outgrown their customers,” he said. “They’re going to have to find ways to bring people back.”
Restaurants have been increasing their menu prices for the past few years, so even if fewer customers buy their meals or fewer people come in, they get an increase in sales because each bill is higher.
Price hikes have not been enough to deter consumers from eating out earlier this year. According to Placer.ai, foot traffic at fast food, fast-casual and full-service restaurants where someone takes your order at the table increased between 20% and 31% in January compared to the previous year.
Every category was in decline through August, when consumers have struggled with months of high inflation. In the same month, traffic at fast food restaurants fell 1.2%, for fast casual dining by 1.7%, and at full service restaurants by 4.7%. Fast food traffic rebounded slightly in September and October. however, fast casual and full service traffic remained negative.
“We are seeing a marked impact on visitation trends due to inflation,” Hottovy said.
Consider the situation in Chile. Sales at the chain’s locations open at least 18 months rose 3.8% in the three months ended Sept. 28, Chilean parent Brinker International ( EAT ) said in November, driven by higher prices.
On the other hand, traffic has decreased 6.6% in the quarter and this is not expected to change anytime soon. The company predicts a mid-single-digit decline in foot traffic for the rest of the fiscal year.
“We believe some guests are responding to the tougher economic environment with fewer restaurant visits,” Brinker CFO Joe Taylor said during an analyst call discussing the results. He acknowledged that “we will probably see some traffic losses on the discount side of the equation.”
Some consumers may trade up to more affordable restaurants. But many find that eating out is still cheaper than eating out, even though food prices have risen.
Food is generally more expensive and not only in restaurants. In fact, grocery prices are rising faster than menu prices. Food prices, not seasonally adjusted, rose 12.4% through October, according to the Bureau of Labor Statistics. Restaurant prices increased by 8.6%.
But food products in general cheaper than restaurant meals. As consumers try to stretch their budgets, demand for groceries remains high.
KK Davey, president of thought leadership at research firms IRI and NPD, said grocery store sales “remained fairly steady” in terms of volume.
“Restaurant meals are three or four times more expensive than home-cooked meals,” Davey said. “People aren’t eating out as much,” he said, because of cost inconsistencies and rising menu prices. “Inflation clearly drives this behavior, especially among those who have to stretch their budgets.”
Wendy’s CEO Todd Penegor said during an analyst call discussing the company’s third-quarter results that the industry traffic decline is “really about the state of the consumer.”
Customers “have shifted to eating more at home during the pandemic. It’s kind of stuck there because consumers are a little bit more locked in,” he said.
“So what you’re seeing right now is a little less frequency in the industry, and that’s putting a little pressure on traffic.”
Chili’s noted that traffic dropped when it pulled back on discounts. But more deals don’t necessarily mean more traffic.
“Traffic [quick-service restaurants] The company that offers the most deals fell 1% in the quarter, the same decline as a year ago [those] restaurants,” according to NPD’s November report.
In October, one promotion performed so well that Hottovy noted that fast food restaurant traffic overall went from negative to positive, and it had nothing to do with discounts: McDonald’s Cactus Plant Flea Market Box, aka Adult Happy Meal.
“Earlier this month, in partnership with Cactus Plant Flea Market in the US, we tapped into one of the most nostalgic McDonald’s (MCD) experiences, enjoying a happy childhood meal, and repackaged it to make it suitable for adult fans. ” McDonald’s ( MCD ) CEO Chris Kempczinski said during the chain’s third-quarter results on an analyst call in October.
“It’s fair to say that this sentimental experience was a success as 50% of our collection supply was sold in the first four days of the campaign,” he said. “These increased visits also led to the highest weekly digital transactions ever for a US business.”
If other companies follow McDonald’s playbook, expect more nostalgic offerings.