Consumers are more likely to reduce restaurant visits than business declines

  • According to a report by AlixPartners, consumers are more likely to cut back on restaurant visits rather than trade up to protect their budgets.
  • In April, prices for meals away from home rose 8.6% from a year earlier, according to the Bureau of Labor Statistics.
  • In the same month, traffic at restaurants open at least a year fell 3.5% from a year earlier, according to Black Box Insights data.

People sit outside at Petite Crevette restaurant in the Brooklyn borough of New York City on June 05, 2021.

Robert Nickelsberg | Good pictures

During the Great Recession, consumers traded down to cheaper restaurants for bargains or chose less expensive menu options.

But today, as inflation puts pressure on their wallets, consumers are more likely to cut back on dining out to protect their budgets, according to a report by AlixPartners.

The cost of eating out has been rising for more than a year. In March, for the first time since inflation began to pick up in mid-2021, prices for meals eaten away from home rose faster than prices at grocery stores.

In April, prices for food away from home rose 8.6% Compared to the previous year, according to the Bureau of Labor Statistics. Food prices at home rose by 7.1% during the same period.

In response, fewer diners visit restaurants. In April, traffic at restaurants open at least a year fell 3.5% from a year earlier Black box intelligence Information.

A December survey conducted by AlixPartners found that 74% of respondents said they planned to cut back on dining out. 39% said they would choose less expensive restaurants. Respondents could select more than one option.

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In January 2009, only 12% of respondents said they would eliminate or reduce visits to reduce their restaurant costs.

“History will tell you that people trade less but keep eating,” said Andrew Sharpy, managing director of Alix Partners.

Read more about CNBC’s coverage of inflation

But in the decade and a half since the financial crisis, consumers have changed. The epidemic made many people comfortable cooking at home. Rather than trading up from casual dining to fast food, Sharpy said he thinks consumers will budget their restaurant spending for experiences they can’t replicate at home.

“Now you’re going to see winners and losers,” he said.

Young consumers, in particular, are cutting back on their takeout and food-delivery orders, but still plan to eat in-person, the report says. Delivery orders are generally more expensive due to the associated fees and sometimes higher food prices to cover the commission fees that restaurants have to pay.

“Delivery is very expensive,” Sharpy said.

First Watch Restaurant Group said in early May that its customers were not ordering their food through third-party delivery services as often.

For its part, DoorDash is getting started Push back By offering same-delivery and in-store restaurants a more favorable position in its use, against inflated delivery prices.

Changes in consumer spending also showed up in quarterly earnings for other restaurant companies. El Pollo Loco, Domino’s Pizza and Outback steakhouse owner Bloom’s Brands were among companies that reported declining traffic in the U.S. last year, despite softer comparisons to last year’s readings, when the Covid-19 outbreak hit industry sales.

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But some restaurants insist they have not seen any significant changes. Starbucks said its customers weren’t shopping less or spending less at its cafes. Josh Kobsa, chief executive of Burger King owner Restaurant Brands International, said Tuesday the company doesn’t see much change in its business.

“You can trade some people who are existing customers, but we will benefit from a certain trade. It’s hard to separate these two dynamics too much, but we don’t see a big change. Business that we can directly attribute to inflation,” Kobsa said at Bernstein’s annual Strategic Decisions conference.

Companies that see changes in consumer behavior are changing their strategies. Chipotle Mexican Grill, for example, plans to pause price increases until inflation picks up again.

Elsewhere, Chili’s parent Brinker International is phasing out its Maggiano’s Italian virtual brand, which is only available for delivery orders. Noodles & Company is leaning on its value proposition.

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