Food inflation continues to influence consumer behaviours. Even though the overall Consumer Price Index in Canada has trended lower in recent months, the inflation rate for food purchased from stores has continued to trend well above average. As a result, more than two-thirds of consumers who complete our Circana omnibus surveys report they plan to cut back on their overall spending due to rising prices. The number-1 spending category where they plan to cut back is restaurants.
Throughout most of 2022, this cost-cutting behaviour was not noticeable, because the foodservice industry was still experiencing the rush of pent-up demand for restaurant experiences against the backdrop of pandemic-era restrictions. However, the latest continuous restaurant tracking data (12 months ending March 2023) from Circana’s CREST® service indicates some restaurant-spending adjustments have already begun to play out in the market. Here’s a look at the top spending shifts consumers reported:
Cut back on restaurant meals (75 per cent): The pace of growth in foodservice traffic slowed to just six per cent in March 2023 compared to a year ago. Circana’s Future of Foodservice Canada predicts that growth for all of 2023 will be just over two per cent, in anticipation of an even flatter growth curve. In my estimation, the pandemic recovery period is over, and the industry must adapt to this new normal of single-digit traffic gains. That means no more big swings in customer traffic. Instead, restaurateurs will need to find growth in areas where the market continues to transform, such as at breakfast, among Gen-Z consumers, and with off-premises occasions.
Use more coupons or promotions (40 per cent): The dealing rate in QSR is holding steady at 31 per cent, well above pre-pandemic levels, while the rate is creeping back up again in FSR. Higher dealing rates are not a bad reality if operators can manage them properly. Avoid deep discounts; instead, focus on strategies to provide value for money to guests and encourage incremental visits. Consider combo meals and fixed-price menus, buy-get offers, or family-sized meals. Specials that promote higher-margin items are another way to offset high operator food costs and encourage more items per order (see below), all while delivering better value to the consumer.
Trade down to a less expensive restaurant occasion (37 per cent): CREST data shows there is no sign yet that FSR has lost the traffic share it has fought to win back over the past two years. Instead, the data reveals other trade-down behaviours. Here are a few examples:
Ordering fewer items (35 per cent) and choosing less-expensive occasions (25 per cent): The trade-down taking place is within the menu and within the dayparts. In FSR, entrée and appetizer/side dishes have fallen in overall incidence by more than 10 points versus recent highs. As consumers returned to in-person dining over the past year, they traded these menu categories for beverages and thus maintained their average items per order at historic low levels. Desserts are another casualty of consumers’ frugality, and this extends to both FSR and QSR. Meanwhile, supper share growth diminished in recent quarters across both restaurant segments in exchange for morning and lunch visits. It is debatable whether this trade-down is due to the economy or the resumption of out-of-home behaviours. But there is no debate that the rapid growth in supper spending has slowed, and that consumers’ foodservice budgets are being re-allocated to meals earlier in the day.
The issue of rising food prices is not exclusively felt by consumers. Restaurant operators face the same inflationary pressures on their food costs. Together with other rising input costs, Restaurants Canada reports most restaurateurs will be forced to implement menu price increases of between four and seven per cent, or more, in the coming year (Restaurants Canada, Q1 2023 Restaurant Outlook Survey). This could amplify the impact of the behaviour shifts outlined above.
One bit of positive news from our recent study is that consumers are least likely to trade off in-person restaurant meals for off-premises occasions. In other words, most people intend to continue visiting their favourite restaurants as they have in the past year, despite economic pressures. This tells us a restaurant meal is still an affordable experience for many.
BY VINCE SGABELLONE – director of Client Development and Foodservice Industry analyst at Circana. He can be reached at [email protected]
