Consumers Are Trading Down. Here’s How to Prevent Trade-Out

What’s the saying? You can’t get blood from a turnip? Today’s restaurant guests are certainly an example. There’s only so much wiggle room in their discretionary incomes and it’s showing up in decreasing basket size and check. 

Based on our most recent QSR sales and traffic data, we can tell from decreases in traffic and basket size that we’re at an inflationary tipping point. In our April 2022 monthly industry impact report, QSR sales in the US are flat at 0.2 percent in Q1 2022 compared to the same quarter last year. 

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Our data shows QSRs have struggled to regain traffic since the second half of 2021. And as we examine Q1 2022, we see that QSR performance continues to lag. In March 2022, traffic was down -8.5 percent compared to March 2021. For the quarter, traffic was down -6.3 percent. 

When we look at traffic by daypart, lunch and dinner were down by about -3 percent. Even breakfast, which was trending upward throughout 2021, has started to decline, with YOY traffic down -0.4 percent in the first three months of 2022. 

During the pre-vaccination days and stimulus payments of the pandemic, checks were larger thanks to consumers placing large orders. In a consumer insights survey we fielded in Q4 2021, 86 percent of respondents reported at least one weekly drive-thru visit. In Q1 2022, that figure decreased to 80 percent. 

Interestingly, our most recent Q1 2022 data tells us that the average check continues to increase; however, what is changing is the number of items per transaction—that’s down by 3.1 percent. Customers warned us. Returning to the Q1 consumer insights survey, only 16 percent of respondents then said they planned to order “more or much more” from a drive-thru in the future. In Q4 2021, 23 percent said they planned on ordering more. 

The net? When the average check increases but basket size (the number of items per order) decreases, it is a strong indicator that consumers aren’t getting ready to tighten their belts—they already are. 

The market is volatile, but one thing is clear. We’re officially in a trading down environment. The question then becomes, what can QSRs do to avoid customer trade out?

How QSRs Can Avoid Customer Trade Out

RMS Senior Vice President of Consulting Strategies Richard Delvallée shares these tips for QSRs to avoid trade out while growing inflation. 

Pricing strategies

Consider item-level pricing strategies rather than across-the-board price increases. By increasing in small increments over an extended period, operators can manage price sensitivity. 

Watch for changes in the following data: 

• Incidence/units per transaction (UPT)/demand by item within each menu category. When guests second-guess their checks, they skip appetizers or trade down within a menu category, for example, ordering a sirloin instead of a ribeye. 
• The add-on attachment rate tells operators what’s NOT on the check. Watch percentages of alcoholic beverages, appetizers and desserts sold by transaction. If percentages are decreasing, guests are in check management mode. 

By understanding the details of the trade-down, operators can use menu engineering to avoid trade-out and maintain margins. In the steak example, we might recommend finding a less expensive replacement for ribeye that is more profitable than sirloin. 

If add-ons are declining rapidly, operators may want to consider creating a bundled offer containing those items. Finding a way to upsell items such as alcoholic beverages, salads or desserts can deliver a higher average check. 

Consider the value equation  

While inflation may drive customers away, a poor experience exacerbates the problem. Keep your entire operation engaged and involved in avoiding some common customer irritants. As consumers think hard before enjoying food away from home (at least for the time being), don’t give them a reason to go elsewhere due to a bad experience.  

Longer wait times cause dissatisfaction. By incorporating technology, such as loyalty programs and pre-menu boards, operators can deliver an improved, personalized customer experience with less friction.

Combat order inaccuracy by training team members to repeat the customer’s order. It’s simple but can ensure accuracy and alleviate consumer concerns. 

Staffing is challenging in today’s tight labor market, but no one enjoys poor customer service. Operators should aim to staff a location appropriately and retain staff with better benefits, work/life balance, flexibility and advancement.

As consumers deal with inflation, restaurants must address price sensitivity, becoming more strategic with price increases and discounting approaches.