Chick-fil-A wins the battle with wary restaurant consumers
The situation for restaurants is currently confusing. The Wall Street Journal, noting that food services accounted for more than 19 percent of all retail leases last year, called them “real estate’s new darling” thanks to rising consumer spending. millennials for out-of-home meals. According to the National Restaurant Association, the restaurant industry is expected to reach $1 trillion in sales in 2024, an all-time high as it strives to create 200,000 jobs, growing to 15.7 million.
And yet, publicly traded brands with positive trading are outliers. As an industry, according to Revenue Management Solutions, quick service traffic declined 2.1 percent in May, year over year, down from April when it was down 1 .6 percent. Breakfast traffic fell 5.6 percent and lunch traffic fell 3.5 percent (dinner was positive at 0.6 percent).
Simply put, there is no concrete consensus. In many cases, restaurants thrive on pricing, but transactions aren’t keeping pace. Customers do not seem willing to give up eating out, but the perception is moving more towards luxury than daily habit.
Net sales were positive by 1.9 percent in May, according to RMS, with the average price up 3 percent year-over-year.
According to a Lightspeed survey of more than 7,500 consumers, 51% said they would continue to dine out at the same rate or increase their outings over the next six months. However, seven in ten people reported rising meal prices and four in ten noticed their favorite meals decreasing.
With 81% of respondents dining out at least once a month, and 38% once a week or more, there has been a race to find value: 43% said they were looking for deals with coupons, 39 percent were choosing value meals and 36 percent are making the most of happy hour specials.
William Blair, in his 2024 State of the Consumer report, called this landscape a “consumer bifurcation.” Or a resilient restaurant balanced by an increasingly soft restaurant on the lower income side of the equation.
This latest cohort, the company said, began to fall behind after a period of ramp-up in the years following the pandemic. They are buffeted by a growing number of headwinds, such as resuming student debt repayment, rising interest rates, lack of affordable housing and depleting savings. “However, the most pernicious headwind is the still high rate of inflation in the face of decelerating wages and therefore slowing real income growth,” said William Blair. Meanwhile, middle and high income customers are retained.
And challenging trends lie ahead with the 2024 presidential election.
According to William Blair, since 1996, retail sales excluding gasoline and automobiles have decelerated sequentially by an average of 0.7 percent over five election cycles, compared to the average annual growth rate heading into presidential election season. The impact is most pronounced in December, the peak of the holiday sales period, with a sequential deceleration in retail sales of 1.8 percent on average, while October and November declined by an average of 0.4 percent, before declining slightly positively in January with an average acceleration of 0.4 percent.
By category, the company added, excluding gasoline and auto, only e-commerce and grocery maintained growth above the respective trailing 12-month average, with grocery likely attributable to the defensive nature of the space and e-commerce thanks to the long period of growth. term, secular trend of continued online migration. All other segments slowed to some capacity, although restaurants (down 0.4 percent sequentially) and general merchandise stores (down 0.6 percent) were more isolated than most of them.
It’s also worth noting that election cycles historically put a damper on brands that rely heavily on advertising, as they pull back to avoid being smothered by what promises to be record levels of political ad spending this year, across more channels than ever before.
Customer satisfaction guaranteed
This year’s U.S. Restaurant and Food Delivery Customer Satisfaction Study, which follows similar trends, revealed complex themes. While satisfaction with fast food restaurants rose 1 percent, to 79 (out of 100), and 4 percent for full-service restaurants, to 84, with households earning less than $75,000 a year reported that they were reducing their restaurant visits due to rising prices.
CHECK LAST YEAR’S RANKINGS
“Customers at full-service restaurants and fast-food restaurants are skewing somewhat more toward higher income levels and college graduates,” said Forrest Morgeson, associate professor of marketing at Michigan State University and director of research emeritus at ACSI, in a press release. “Customers are forced to make decisions between groceries and restaurants, with full-service restaurant inflation about twice that of groceries over the past year and fast food prices and fast casual restaurants at up to three times that of groceries. While customers seem to view restaurant dining as a luxury, restaurants that can differentiate themselves on quality and value will have a competitive advantage.
But there was one stable point: Chick-fil-A topped ACSI’s list, as it has for 10 years in a row.
Chick-fil-A is a private brand that does not release its attendance figures. We can nevertheless assume that the brand has no difficulty generating transactions. In 2023, the brand reached a record systemwide revenue of $21.6 billion (up from $18.815 billion and $16.674 billion the previous two years, respectively). Only three restaurant chains in the United States have surpassed the $20 billion mark in 2023: McDonald’s ($53.1 billion), Starbucks ($28.7 billion) and Chick-fil-A.
Chick-fil-A totaled 2,552 domestic locations at the end of the year, compared to 13,457 for McDonald’s and 16,346 for Starbucks. The main dividing factor was average unit volume. No restaurant chain among the 50 most profitable brands in the United States brought in as much as Chick-fil-A, at $7.450 million. Cain’s increase was next at $5.690 million. Chick-fil-A’s drive-thru brought in $9.374 million. And all this despite being open six days a week.
KFC came in second in the study, even in light of the U.S. market’s overall struggles. KFC’s domestic profits fell 7% in the first quarter. This is the first negative result since mid-2022, when the brand delayed the launch of its chicken sandwich, even though comps remained stable during the last two quarters of fiscal 2023. Yum! CEO David Gibbs attributed the first quarter slowdown to winter weather in the first part of the quarter and “chicken value promotions” from competitors.
Again, looking at the broader hurdles, monthly visits to KFC’s domestic stores were trending negatively in the low single digits heading into 2024, and declines accelerated over the first few years. month of the year, according to data from Placer.ai. Year-on-year, traffic fell 7.5 percent in January and 6.2 percent in February before falling 12.2 percent in March.
Gibbs said KFC is working behind the scenes to “boldly reset the brand,” details of which will be forthcoming. Culver’s, Panera, Arby’s and Starbucks are tied for fourth.
As a category, most trends have been relatively consistent from year to year. Order accuracy, mobile quality, and mobile reliability have improved as technology appears to help eliminate friction. In fact, mobile quality exceeded that of the full-service channels studied. Quick Service also received high marks for staff courtesy and F&B quality (84), although it was understandably outperformed by tableside brands in these measures. “As noted for full-service restaurants, pressure on some consumers to reduce discretionary spending will require restaurants to provide an exceptional customer experience to maintain loyalty,” ACSI said. “As with full-service restaurants, fast food respondents for the 2024 study have slightly higher income levels and college graduation rates compared to the previous year, consistent with the fact that low-income consumers eat out less frequently.”

Delivery into the fray
For the first time, ACSI measured the food delivery industry. It reached 73, significantly lower than full-service restaurants (84) and fast food (79).

As always, the perception of delivery came down to occasion. Customers who use the channel tend to know what they are getting into and respond accordingly. Are they in a hurry, for example? If so, they will likely prioritize speed over quality and accept the cost. However, people using delivery services out of necessity (e.g. for health reasons or without a vehicle) were frustrated by the prices.

The full service vision
Steak concepts tend to rank well in the ACSI index, and that was the case once again when Texas Roadhouse and LongHorn found themselves at the top. Chili’s (up 4%) and IHOP (8%) rose as they shifted to value (3 for Me in Chili’s case). Outback, last year’s leader, slipped 4 percent.

The chart below shows the significant movements as customers appreciate the category’s ability to deliver an experience while improving value. “Providing an exceptional customer experience will be even more crucial for consumers who feel pressure to reduce their discretionary spending. Full-service restaurant respondents for this study have slightly higher income levels and college graduation rates than in 2023, supporting the information that low-income consumers eat less frequently at restaurants. restaurants,” ACSI said.

The ACSI 2024 Restaurant and Food Delivery Study was based on 14,604 completed surveys. Customers were randomly selected and contacted by email between April 2023 and March 2024 for the catering sectors and between November 2023 and March 2024 for food delivery.

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