Will the pace of menu price increases slow in 2023?
Menu prices continue to rise. When will consumers say enough is enough?/Photo: Shutterstock.
In the last round of earnings calls, there was a lot of talk about menu prices.
It was a difficult year to balance high food and labor costs. And most public companies discussed their pricing strategies over the past 12 months and their plans for the fourth quarter and beyond.
Year-over-year price increases for restaurants ranged from 6% to 13% in the third quarter, well above typical single-digit increases. Most brands beat the average out-of-home food inflation of 8.6% for the year ending October.
And yet, most companies said they still had room to raise prices further.
But discussions of consumer opt-out are also growing. Brands like Chipotle Mexican Grill have noted the loss of low-income diners, for example, while chains like McDonald’s and Potbelly have clawed back some of those dwindling customers.
“You have a consumer who is dealing with inflation, and he is doing his own calculation based on what he wants to profit from and what he can afford and where he thinks he will get the most bang for his buck. silver. And we’re thrilled to see them picking us up and at an ever-increasing rate over our fast-paced, casual competitors,” Potbelly CFO Steve Cirulis said in an earnings call last week. according to a transcript from financial services site Sentieo. /Alpha Sense.
For some, menu pricing can be a bit of a game of chicken.
Sweetgreen, for example, raised prices by 6% in January and then stayed flat for the rest of the year, although increases are likely in 2023. Jonathan Neman, co-founder and CEO of Sweetgreen, plans to suspend price increases in 2022 as an opportunity to gain market share.
“As more and more people take the prices, we expect the environment for consumers to become more challenging, and we have, in many ways, just seen an opportunity,” he said. during the third quarter earnings call. “While our competitors have continued to take price, the relative value we offer, we believe, is improving.”
Sweetgreen does not plan to raise prices in the fourth quarter, but many other chains plan to do so or have already done so. At Red Robin Gourmet Burgers, for example, menu prices rose 7.7% year-over-year in the third quarter, with another 1.5 percentage point increase expected to begin in November.
Others talked about dumbbell strategies to retain inflation-weary customers while offering more expensive items as margin boosters.
Noting heightened price sensitivity among customers, Papa John’s International, for example, pledged to “provide the right promotions to our value-driven customers without risking the erosion of our brand or price integrity on our more premium offerings,” said Rob Lynch, the pizzeria. President and CEO of the chain.
In September, Papa Johns launched a national offer offering two or more items from a menu limited to $6.99 each, resulting in a $14 transaction that increased the average check.
Several companies said they expected the pace of food price inflation to slow next year. As a result, menu prices are not expected to fall per se, but several chains have predicted that they may return to more normal price cadences, with price increases once or twice a year, and likely to lower levels. .
For much of the year, restaurant owners have pointed to the higher inflation rate at grocery stores, but the gap between food out and food at home is narrowing.
Even if commodity prices drop, the delicate dance of finding the right price on menus will no doubt be with restaurants for some time to come.
As Henry Melville Hope, Chief Financial Officer of First Watch, said on their earnings call: “As we think about pricing, when pricing, what will it be, on what will it be, where it will be – this science will happen in a fairly thoughtful way to make sure that we preserve the value proposition with our customer.
Here’s a look at menu price increases for the year by brand in Q3:
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all our content. Register here.