The most recent third-quarter figures from the US Commerce Department indicate a 2.6% increase in the GDP. Compare that growth to the first half of the year, when the economy was headed the other way (downward), and if you squint hard enough, it may look like we’re baby-stepping toward turning an economic corner.
But ask a consumer, and you will hear a different perspective. Even if things do begin to turn around (and just yet, no one has confirmed they are), how long before any noticeable relief? The effects of prices growing faster than wallets will not dissipate magically or quickly. In the meantime, how much price can QSR guests stomach?
That’s the question Revenue Management Solutions set out to answer on behalf of our 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 US QSR locations across numerous brands, RMS found that consumers have a breaking point. Here are some of the findings:
- When price increases surpassed 10%-13%, traffic started to decline severely, even negating some or all of the net sales benefits.
- While traffic began to dip at around 6%, it remained relatively stable until hitting the threshold of a 13% price increase.
- Among the locations RMS observed, the average price increase was beneath the threshold, with increases between 9% and 10%.
“The future of pricing for QSRs remains unpredictable,” says RMS Chief Operating Officer Mark Kuperman. “Some brands will 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 restaurant, of the following pricing levers:
- Customer type
- Store location
- Price by item
- Magnitude and timing of recent pricing rounds
Price and value perception among QSR guests
“Before taking price,” Kuperman cautions, “it’s worth being thoughtful and judicious, just as guests are when it comes to deciding what to spend their limited discretionary income on.” Based on findings from RMS’ Q3 survey analysis of over 750 US consumers, 68% compare prices before making a choice at their favorite QSR, and 67% know the price of the menu item they’re ordering.
Along with price, consumers are questioning value. Among the Q3 findings, 40% of guests stated they believe restaurants aren’t a good value, and 50% say they’re spending more at restaurants due to higher prices.
“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.”
For QSR brands interested in joining the world’s leading restaurant brands that rely on RMS to better understand, manage and navigate current conditions for maximum profit, please reach out or request a demo. We’re here to help.