Restaurant chains reported increased sales in the third quarter. But more sales doesn’t mean more customers.
Indeed, industry observers are noting that foot traffic to restaurants has decreased in recent months. That’s because as inflation eats into consumers’ budgets, many have reduced restaurant visits and eaten at home more often.
“You’re seeing that dichotomy where you see solid sales numbers, but ultimately it’s mostly… because of price increases,” said RJ Hottovy, head of analytics research at Placer.ai, which uses location data. mobile devices to estimate visits.
Many restaurant chains “have outpriced their consumers,” he said. “They’re going to have to find ways to get people back inside.”
Restaurants have raised menu prices in recent years, so they get a boost in sales because every bill is higher, even if fewer customers buy their food or people come in less often.
The price increases have not been enough to stop consumers from dining out earlier this year. In January, foot traffic at fast food, fast casual and full-service restaurants, where someone takes your order at the table, increased between 20% and 31% from a year earlier, according to data from Placer.ai. .
But in August, when consumers had to contend with high inflation for months, every category was in decline. In that month, traffic at fast food restaurants was down 1.2%, down 1.7% for fast casuals and 4.7% at full-service restaurants. Fast food traffic recovered slightly in September and October, but fast casual and full service traffic remained negative.
“We are seeing a major impact on visitor trends from inflation,” Hottovy said.
Consider the situation at Chili’s. Sales at the chain’s locations that have been open for at least 18 months rose 3.8% in the three months ended Sept. 28, Chili’s parent company Brinker Internationa (EAT) reported in November, an increase driven by ‘price increase.
Traffic, however, has decreased 6.6% in the quarter and that’s not expected to change anytime soon. The company expects foot traffic to decline by single digits for the remainder 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 a call with an analyst to discuss the findings. He acknowledged that “we’re likely to see some traffic losses on the discount side of the equation.”
Some consumers may switch to more convenient restaurants. But many are finding that while food prices are also on the rise, eating in is still cheaper than eating out.
Food is getting more expensive across the board as well not just in restaurants. In fact, food prices are rising faster than menu prices. In the year to October, unadjusted for seasonal swings, food prices rose 12.4%, according to data from the Bureau of Labor Statistics. Restaurant prices increased by 8.6%.
But groceries are generally cheaper than restaurant meals. And as consumers look to stretch their budgets, demand for groceries remains high.
Volume sales at the supermarket “remained fairly stable,” said KK Davey, president of thought leadership for research firms IRI and NPD.
“Restaurant meals cost three to four times as much” as home-cooked meals, Davey said. Because of the cost discrepancy and the menu price increase, “people don’t eat out as much,” he said. “Inflation clearly drives this behavior, particularly among those who need to stretch their budgets.”
The decline in traffic across the industry “really has to do with the state of the consumer,” Wendy’s CEO Todd Penegor said during a November analyst call discussing the company’s third-quarter results.
Customers “have switched to more meals at home during the pandemic. It’s kind of stuck there because consumers have been tied in a little bit more,” she said.
“So what you’re seeing is a little bit less frequent in the industry at the moment, which is putting some pressure on traffic.”
Chili’s noticed its traffic dropped when it rolled back the discounts. But more business doesn’t necessarily mean more traffic.
“Traffic to [quick-service restaurants] offer the most offers decreased by 1% in the quarter compared to a year ago, the same decline witnessed by the balance of [those] restaurants,” according to a November report from NPD.
In October, a promotion went so well that it boosted restaurant traffic to fast food in general from negative to positive, Hottovy noted, and it had nothing to do with the discounts: McDonald’s Cactus Plant Flea Market Box, also known as Happy Meal for adults.
“Earlier this month, through a collaboration with Cactus Plant Flea Market in the US, we took one of McDonald’s (MCD) most nostalgic experiences, enjoying a happy meal as a kid, and repackaged it to be relevant to adult fans, McDonald’s (MCD) CEO Chris Kempczinski said during an October analyst call about the chain’s third-quarter results.
“It’s fair to say that this sentimental experience was a success, as 50% of our collectibles offering was sold in the first four days of the promotion,” he said. “These surging visits have also resulted in the highest weekly digital transactions ever recorded in US business.”
If other companies follow McDonald’s playbook, expect more nostalgic offerings.