First Insight’s April 2022 The State of Consumer Spending report found that, as expected, the continuing effects of inflation are impacting consumer confidence and reducing their purchases. Over 80% of those surveyed reported looking for less expensive ways to shop, and 40% said they were sticking to a budget. This represents quite a change from the increased spending that accompanied the government’s many stimulus incentives during the worst of the pandemic.
The good news: Reduced spending may positively affect the supply chain disruption. The bad news: According to their research, about 33% of consumers plan on reducing their entertainment spending, focusing on essentials, such as groceries, gas, healthcare, and rent or mortgage.
Preparing for a Slow Down
Any operators that have been in the restaurant industry for any period know that it’s comparable to a roller coaster or the words of Charles Dickens, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…” The trick, many discover, is looking ahead and taking steps before the next big curve or big drop-off takes your breath away. As inflation continues and gas prices rise, reduced spending is inevitable. So, what do we do about it?
Predictive Analytics and Restaurants
The role of predictive analytics in restaurants is to make use of historical data to predict future trends and plan accordingly. Many POS systems can analyze daily information such as the time of transactions, inventory, and staff performance.
To avoid ordering too much or not enough product, the POS system updates inventory in real-time, hiding unavailable items for online orders and notifying staff if a specific item is getting low. A trending report lets you know what menu items are selling when they’re selling, and who’s selling them.
All of these little details are important in daily operations. When the environment is unstable, these little details can make the difference between profit and loss.
The Inflationary Tipping Point
A report conducted by Revenue Management Solutions (RMS) found that the traffic trend for quick-service restaurants was down about 8.5% in March 2022 compared to last year. However, the first quarter of 2022 saw average checks up by almost 7% despite the slowdown.
Rising prices play a part in increasing check averages, so it’s essential to scrutinize costs. Apparently, customers are, with 68% noting that restaurant prices were either higher or much higher, compared to only 35% who noticed an increase in prices in the first quarter of 2021. While most have understood the rising costs brought on by inflationary pressures, supply chain disruptions, and labor upheavals, the realization that inflation is not going away any time soon has impeded their continuing support.
About 34% of customers are ordering less expensive menu items, and 30% are choosing less expensive restaurants. RMS predicts that higher prices will affect traffic through the rest of 2022.
We can take a lesson from the strategy of the world’s largest fast-food restaurant chain, McDonald’s. During the brand’s Q4 call, CFO Kevin Ozan reported that they look at two things as prices rise, including how customers react and how they view value. The other point is understanding where they are in relation to competitors and cost pressures.
Restaurants that were cutting back operating hours due to insufficient staff are now considering cutting hours due to decreased customer demand.
The New Benchmarks
In our current economic environment, it’s more important than ever to keep a wary eye on a restaurant’s benchmarks. Unfortunately, detailed assessments of performance often rely on far-to-simple data. Additionally, yet another task on an already burdensome operator’s plate can feel overwhelming at best and throw in the towel at worst. Assessing performance metrics like net income, prime margin, and gross profit margin is a daily task, as is running the BOH and FOH operations and the customer experience.
Consider the following touchstones when devising a strategy to weather the current economic environment: the trending sales and profits for each location and how this translates to a unit’s potential; comparison of sales, guest counts, and average spend; and the impact and how your company’s handling the recent rising costs in labor and product. If considering expansion, consider a new approach to assessing real estate locations as customer behavior shifts and transforms.
FAQ
Are guests dining out less frequently?
According to the NPD Group, the first quarter of 2022 saw a 2% decline in restaurant visits compared to 2021. This was due, in part, to the headwinds of higher energy and food costs.
Are guests spending more when they dine out?
Yes. The first quarter of 2022 saw spending up 2% in quick-service restaurants and up 10% in full-service restaurants.
Are inflationary pressures expected to decrease?
Unfortunately, trends point to lasting price pressures. However, as the supply chain recovers and economic growth slow due, in part, to the Federal Reserve’s interest-rate increases, inflation should retreat from its four-decade highs.
