Consumers are more likely to visit restaurants than trade

During the Great Recession, consumers were looking for bargains, splurging on inexpensive restaurants or opting for less expensive menu options.

But today, with inflation squeezing their wallets, consumers are more likely to cut back on restaurant visits than maintain their budgets, according to a report by AlixPartners.

The cost of eating out has been going up for over a year now. In March, for the first time since inflation began accelerating in mid-2021, prices for meals eaten away from home rose faster than grocery store prices.

In April, far from home food prices skyrocket 8.6% compared with the same period last year, according to the Bureau of Labor Statistics. Food prices at home increased by 7.1% over the same period.

In response, diners visited restaurants less frequently. In April, traffic at restaurants open for at least a year declined 3.5% from a year earlier, according to Black box intelligence data.

In a December AlixPartners survey, 74% of respondents said they plan to reduce dining out. Only 39% said they would choose less expensive restaurants. Those surveyed could choose more than one option.

Back in January 2009, only 12% of respondents said they would eliminate or reduce visits to cut back on their restaurant spending.

“History will tell you that people are holding back but continuing to eat out just as much,” said Andrew Sharpey, managing director of AlixPartners.

But in the decade and a half since the financial crisis, consumers have changed. The pandemic has made many people more comfortable cooking at home. Sharpay said he believes consumers will allocate their restaurant spending to experiences they can’t replicate at home, rather than trade off from casual dining to fast food.

“What you will see now are winners and losers across the board,” he said.

According to the report, young consumers, in particular, are cutting back on takeout and food delivery orders, but still plan to dine in person. Delivery orders are usually more expensive because of the accompanying fees and sometimes the higher prices of the food itself, to offset the commission fees that restaurants have to pay.

“Delivery has become very expensive,” said Sharpay.

First Watch Restaurant Group said in early May that its customers had not often ordered their meals through third-party delivery services.

For its part, DoorDash has begun to do just that push back Against inflated delivery prices by giving restaurants with the same in-store delivery and pricing a more convenient placement in the app.

Shifts in consumer spending showed up in other restaurant companies’ quarterly earnings. El Pollo Loco, owner of Bloomin’ Brands, Domino’s Pizza and Outback Steakhouse, was among the companies reporting lower traffic in the US, though it faced easy comparisons to last year’s metrics, when the Covid omicron outbreak hurt industry sales.

But some restaurants insist they haven’t seen any major changes. Starbucks said its customers have not shopped or spent less at its coffee shops. Josh Kobza, CEO of Burger King owner Restaurant Brands International, said Tuesday that the company hasn’t seen a major turnaround in its business.

“You could have some people trading with existing clients, but we also probably benefit from a certain deal to the category. It’s hard to separate those two dynamics very much, but we haven’t seen a huge shift in the situation,” Kobza said at Bernstein’s annual Strategic Decisions conference.

Companies that have seen changes in consumer behavior are switching strategies. Chipotle Mexican Grill, for example, plans to pause price increases unless inflation picks up again.

Elsewhere, Chili’s parent company, Brinker International, is scrapping its default Italian brand Maggiano, which was only available for delivery orders. And Noodles & Company likes its value proposition.