Study: Consumers’ restaurant budgets fell 10% in two years

During Potbelly’s Q1 earnings call last week, CEO Bob Wright noted that there was increased competition not just among other restaurants, but also “with the refrigerator.” Indeed, restaurants have been on their heels for the past 13 months in which food-away-from-home pricing has outpaced grocery/supermarket pricing. In March, the gap between the two categories was 300 basis points in favor of groceries.

New data from Popmenu suggests just how big of an impact this competition has had throughout the past two years; a study of 1,000 U.S. consumers in April found that consumers now spend 30% of their monthly food budgets on restaurants, down from 40% just two years ago.

This decreased spending is reflected in U.S. Census Bureau data showing that eating and drinking places generated $93.7 billion on a seasonally adjusted basis in March 2024, versus $94.2 billion in November. The trend has also been evident in several recent Q1 earnings calls in which same-store sales and traffic declined at concepts across all segments. Revenue Management Solutions’ data shows that quick-service traffic in April was down 1.6% year-over-year, on top of -3.4% in March.

“We are all feeling pressure on unit economics. Our labor costs are extremely high. Prime costs are going up. We have to price to close that gap so we have enough profit margin to survive,” Lauren Fernandez, CEO/founder of Full Course said during Nation’s Restaurant News’ recent CREATE Roadshow event in Atlanta. “One of the fastest levers to pull is taking price, but some of us are at risk of taking too much price.”

Compounding the issue is tip and fee fatigue. Indeed, consumers’ inflationary pressures are also impacting staff gratuities; 38% of consumers say they are spending the same or more on restaurant meals compared to last year, but they are tipping less, Popmenu finds. In such an environment, the value proposition has been redefined well beyond price.

“Consumers are becoming more savvy. There is a level of understanding now that the consumer is paying for convenience and service and that means we as operators need to make sure the food is arriving on time, that it’s hot, that the packaging is correct, that all of it is executed well,” Michael Alberici, SVP and head of marketing at Smalls Sliders, said during the CREATE panel. “If you’re expecting me to tip you, I expect you to give me a service that’s worthy of that reward.”

If there is a silver lining for restaurants as consumers tighten up their spending, it’s that demand still exists for restaurants despite shrinking budgets for them; 64% of consumers said they would visit a restaurant every day if they could. According to Popmenu’s data, restaurants that are better positioned right now are those that offer bigger portion sizes for leftover opportunities, those that offer special offers or more affordable menu items, and those that offer more rewards through a loyalty program.

“To us, loyalty is the new currency. It provides a better opportunity to turn infrequent guests into frequent guests and those are the ones who are willing to spend a little more,” Alberici said.

Fernandez added that loyalty programs are effectively driving customer behavior in a way that will become “a quantifiable, measurable component of deal values” for investors in the next couple of years.

“If you can’t answer how you drove consumer behaviors through a loyalty program, it will diminish your value,” she said. “There are many ways you can package value right now and you have to figure out what the value proposition is for your customer. Focus on your loyal customer. They’re the ones who drive frequency and bring in new customers.”

Checking in on California

Speaking of diminished restaurant budgets, California pricing has unsurprisingly outpaced the U.S. average as restaurants in the state navigate its new $20 minimum wage. According to RMS, California’s pricing in April was up 5.7% versus the national average of 2.6%. Despite higher prices, net sales in the state are even (0.4%). Quantity per transaction at California’s quick-service restaurants is down -1.5%, while traffic experienced a -4.7% decline amid April’s pricing increases.

Getting a bit more specific, during Chipotle’s Q1 earnings call, executives said the company has taken a 6-7% pricing increase in California “just to cover the cost” of the minimum wage hike. McDonald’s also took a high-single-digit increase in the state to manage labor inflation, as did Domino’s. It’s early days here, but all eyes are likely to remain on California’s pricing/traffic equation for the foreseeable future.

Contact Alicia Kelso at [email protected]