The restaurant industry faces another year of uncertainty, battling inflation, customer price sensitivity

Operating costs are on the rise, prices are going up, and consumers are pulling back.

Inflation takes its toll on the dining industry

• Supply chain disruptions and labor shortages have caused restaurants to raise prices. More than 82% of US restaurant operators said they upped menu prices in 2023, per a December 2023 survey from Restaurant365.
• Restaurant prices continue to rise faster than grocery prices. The most recent Consumer Price Index (CPI) data shows that the cost of “food away from home” is still rising faster than the cost of “food at home.”
• Prices are likely to keep rising in 2024. More than 61% of US restaurant operators said they will raise menu prices in 2024, per Restaurant365.

Consumers have balked at higher prices and cut back on dining out

• The $18 Big Mac meal goes viral. Last summer, a user’s post on X (formerly Twitter) called attention to rising prices at McDonald’s, igniting an online debate around the affordability of fast food and the general cost of dining out.
• Fewer people went out to eat in 2023, but those who did dine out spent more. Sales at food service and drinking places rose just over 11% in 2023, per US Census Bureau data. But restaurant-visit growth trended downward throughout the year, according to foot-traffic data tracked by Placer.ai.
• Consumers also appear to be dining out less frequently in 2024. Full-service and fast-casual restaurants are taking the biggest hit, according to a consumer survey conducted in Q1 2024 by Revenue Management Solutions.

If restaurants are forced to raise menu prices, they must find new ways to provide value

• This is an uphill battle for restaurants, as cost remains the priority for consumers. Roughly 6 in 10 consumers cited price as an influence in deciding where to eat, beating other factors like attractive menu items (54%), speed of service (25%), loyalty points (10%), and online food ordering (7%), per an August 2023 survey from TransUnion.
• When menu prices go up, restaurants need to invest in back-end technology that will enhance the customer experience. This includes loyalty programs that demonstrate actual value to cost-conscious customers, along with frictionless order fulfillment from multiple point-of-sale (POS) destinations. Restaurants should also make data-driven decisions regarding the development and marketing of menu items.

Read the full report, Restaurant Digitization 2024.