Restaurant Trade-Down Across the World

Key takeaways:

• Inflation rates are changing consumer behavior across the globe, with guests exhibiting QSR trade-down.
• Not all diners are spending less on FAFH; some are spending more.
• Data-driven information can help operators slow trade-down.

In 2022, inflation hit record highs around the world. Turkey’s CPI hit a whopping 54.8%. In the US alone, the inflation rate has almost quadrupled over the past two years. In many other countries, rates have risen even faster. Take Italy: In the first quarter of 2022, its inflation rate was about 19x higher than in Q1 2020.

RMS has reported before on the impact of inflation on QSR guest behavior for food away from home (FAFH). While that data focused primarily on the United States, our analysts have since taken an expanded look to see how guests in Europe and Asia are dining out as the industry does its best to avoid trade-out.

Trading down over the world— a snapshot

RMS surveyed diners in Spain, Japan, the UK, the US, Germany, Italy and France. While respondents in all countries believe the restaurant industry is better off now compared to 2021, responses from all countries also indicated that guests are more aware of price increases. It’s here where responses —and behaviors — diverge.

Quick bite: Which countries spend more and less on FAFH

Some guests are spending more of their disposable income at restaurants. At 88% and 72%, respectively, Spain and Japan are spending the same or more on FAFH in 2022 than the previous year.

RMS Director of Analytical Services Francois Acerra reports that for these two specific countries, the increased appetite for eating out and spending more might very well be attributed to severe COVID-19 restrictions in place 12 months ago. “In Spain, of those spending more of their disposable income on restaurants, 29% of guests said  it was due to ordering more food. Guests are eager to dine out now.”

Conversely, Japan isn’t ordering more food — they’re ordering the same meal and attribute the larger ticket to higher prices. Among guests in Japan who are spending less, they’re doing so by visiting less expensive restaurants (26%) and using deals and coupons (26%).

Among the countries spending less were the UK, Germany, Italy, France and the US.

Within the UK, France and Italy, of those spending less, 40% are coping with inflation by choosing less expensive restaurants. Diners trading down in these countries are also opting for less expensive menu items or choosing more value-oriented options.

In the UK, for example, approximately 2 in 5 consumers are trading down by either ordering less expensive items or ordering less from restaurants altogether. In the US, approximately 1 in 3 consumers are trading down, with 34% ordering less expensive items, while 30% of diners are opting for less expensive restaurants.

In a surprising cultural overlap, France and the US are both turning to deals and taking advantage of coupons and promotions to satisfy their desire to eat out while managing spend. “Consumers in both these countries would rather manage their overall spend than give up dining out,” notes Acerra.

Best practices for operators to slow trade-down and avoid trade-out

In RMS’ Q2 consumer report, 68% of respondents said they feel restaurant prices are higher or much higher, and 36% stated that they are now getting less value from restaurants. It’s the combination of all of these factors, says Francois, that has guests ordering more value-oriented items and visiting restaurants less frequently or, in some cases, “trading out and not dining out at all.”

So what can operators do to slow the current diner trade-down and avoid trade-out?

1. Watch for telltale signs. As the global data indicates, before trading out, diners modify their purchase behavior by trading down or reducing the add-ons they typically order. It’s critical to have at least two to three rounds of traffic and purchase data to sufficiently measure, keeping in mind that purchase behavior adjustments can be measured within a couple of weeks.
2. Measure check. Track and monitor your average spend per guest, says Francois, but be sure to evaluate spend in context. “Consider seasonality,” he says. “Is a change an anomaly, or are checks always lower during this period?”
3. Don’t let promos stagnate. Remember to factor in promotional activities, especially any long-term offers that have been running. While an extended offer might prove effective for traffic, it could also cause check to decrease.
4. Monitor by item. Keep track of incidence/units per transaction (UPT)/demand by item within each menu category. Changes in purchase behavior within a menu category could indicate customers are trading down to less profitable items. Consider assessing your menu to identify ways to increase profit margins — doing so can yield increases up to 1%.
5. Examine traffic. Operators can look at several traffic sources to anticipate (and prevent) trade-out: Cumulative traffic patterns can provide warning signs, and so can loyalty member data. The latter is an excellent resource for determining overall customer frequency. Is it going down or staying stable?

Data-driven information, such as anonymized credit card data, offers another way to determine if overall frequency and traffic are declining — not just for loyalty members but for all transactions that use a credit card.

Higher menu prices and the continued rising cost of all things consumer-related don’t seem to be letting up anytime soon. As brands experience trade-down, proceeding with caution and going beyond taking price is prudent.

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