Inflation’s Impact on Restaurant Spend

After months of suggesting inflation was a transitory phenomenon, Treasury Secretary Janet Yellen finally admitted what restaurant brands have known for some time. Inflation isn’t going anywhere any time soon. And it’s not only impacting restaurant prices, it’s impacting restaurant consumer trends in measurable ways.

Key takeaways:

• Check sizes are higher this year, likely driven by price increases due to inflation.
• Customer frequency is down across all restaurant segments.
• Online orders are slightly smaller compared to in-store orders in limited service restaurants, suggesting a change in consumer behavior.
• Higher customer counts are obscuring the drop in customer frequency for loyal customers.

If the current inflation dynamic persists in 2022 as predicted, restaurant brands need to find new ways to increase customer frequency for loyal customers or increase margins to stay ahead of the inflationary curve.

The prevailing narrative about restaurant trends

Early in the pandemic, government restrictions and changes in consumer behavior devastated the restaurant industry. Restaurant share of consumer spend dropped nearly 70% in 2020.

Restaurant spending made a comeback in 2021, but there’s still a ways to go to hit pre-pandemic projections. Major fast-food chains like McDonald’s and Taco Bell reported sales well above 2019 and 2020 levels but at a high level, it appears the great restaurant recovery is well underway. 

But, there’s more to current restaurant consumer trends than meets the eye. The impact of inflation on the economy isn’t equal across all sectors and restaurants are feeling the pinch in a major way. In addition to spiking ingredient prices, supply chain snarls and labor shortages are making it increasingly difficult for restaurant brands to maintain their profit margins.

Cardlytics’ insights into credit card spending paints an interesting picture of restaurant consumer trends. Here’s what we discovered about the true impact of inflation on the restaurant business. 

Key takeaway #1: Inflation is present in the form of higher average check size.

Average check sizes are up across the board, increasing more than 6% for pizza and QSR brands. Casual and full-service dining saw the largest increases at 10.4% and 10.9% respectively. 

That corresponds to Bureau of Labor Statistics data showing a 5.9% rise in prices at quick serve restaurants (QSRs) and a 7.1% increase in full-service restaurant prices. 

Key takeaway #2:  Online check size was down compared to 2020 for limited service restaurants (LSRs).

Oddly enough, our insights show LSRs are seeing a decrease of nearly 5% in online check size compared to 2020, even though prices are the same for customers who order online versus in store. This restaurant consumer trend has gone unmentioned by the national trade media. 

While the exact reason for the decline isn’t clear, one possible explanation is that as more people return to the office for work, they are only ordering for themselves versus ordering for the family when everyone was in work-from-home mode. 

Another possible explanation is consumers are savvier about their online orders after months of ordering takeout. They know what they like, and instead of sampling new menu items, they stick to tried-and-true favorites. 

Also, staff and product shortages are causing many restaurants to cut menu items. Diners may choose to substitute another menu item when eating in, but those who order online may opt to supplement missing menu items with something from their pantry or fridge. 

Key takeaway #3: Higher prices are offsetting the drop in customer frequency. 

While higher average check sizes are cause for celebration, current restaurant trends are not entirely positive. Compared to pre-pandemic levels, customer frequency is down between 10 and 20% across all restaurant segments. Unique customers are also down across all segments compared to 2019, except for QSRs.

While the impact of these declines is partially offset by higher average check sizes, it’s a potentially devastating development for long-term recovery. While repeat customers only represent about 15% of the customer base, they generate roughly a third of the revenue.  Restaurant brands with a robust omnichannel strategy are best positioned to win new customers and compete for their share of spend.

Bracing for 2022

While it’s impossible to predict the future, Federal Reserve Chairman Jerome Powell says surging inflation will continue this year and likely won’t dip until the end of the year. JPMorgan is predicting a labor shortage lasting three or more years, and the supply chain crunch is expected to last through the second half of 2022.

It all adds up to more rough waters for restaurant brands as consumers cut their spending in response to higher prices. If current dynamics persist, restaurants need to know where they can either drive more frequency or higher margins. Well-targeted advertising solves for both by shifting brand and traditional media spend to highly targeted performance marketing that encourages frequency among the most valuable customers while reducing the bite that advertising takes out of margins. 

One way for marketers to combat soft purchase behavior caused by inflation is to identify those customers who are most sensitive to price and who are seeking value. Cardlytics uses valuable insights to better identify, target, and convert ideal customers through their trusted bank channels by providing those customers with compelling, brand-specific digital rewards to drive incremental and profitable transactions.

By connecting the right people with the right rewards, Cardlytics helps brands strengthen their relationships with their most valuable customers and win new customers from competing brands. Get in touch today to see how Cardlytics can help weather the effects of inflation in 2022.