New Survey: Restaurant Chains to Up Prices in Second Half of Year
Chain restaurant leaders are optimistically watching traffic and sales, with expectation of raising menu prices later this year, according to a new survey conducted by supply chain cooperative SpenDifference. The company last surveyed chains on menu price topics in late 2012.
The study, completed the week of May 13, found that nearly two-thirds of chains (64 percent) held the line on menu pricing during the first quarter, raising prices 0.5 percent or less. However, more than 90 percent anticipate upping prices this year an average of 1.6 percent. One-third expect increases of two percent or more. Less than 10 percent plan no increases, which is much lower than last year.
Chain executives are optimistic about 2013, anticipating same-store sales growth of 2.2 percent, which would be about 25 percent higher than 2012. With first quarter sales essentially flat, all the growth is expected in the final three quarters of the year. Executives predict 75 percent of this growth will come from price increases, with the remaining coming from stronger traffic.
“From the data and discussions with our members, it appears that they believe consumers may be more willing to accept higher prices, especially with the economy strengthening,” says Brad Moore, SpenDifference senior vice president. He adds that operators also recognize that they must cover a larger portion of inflation to meet their bottom line. “But even the larger price increases they are planning this year will only cover about 75 percent of expected menu inflation, which they forecast at just under two percent.”
Chains are renegotiating contracts more frequently, with nearly three quarters identifying that as their top cost control strategy. About 60 percent are looking at promoting limited time offers or existing menu items with better margins.
“The reality, though, is that most chains – especially mid-size ones – cannot further reduce costs significantly on their own, given their limited personnel and leverage in the marketplace. This is where organizations like ours pay big dividends,” Moore says. “To protect or improve their margins, operators need to look beyond menu price increases and contract negotiations, and find other ways to save money in their supply chains.”
Respondents were evenly split among full-service and limited-service concepts, and represented chains with fewer than 100 to more than 800 domestic units. SpenDifference made a donation for each response to the National Restaurant Association Educational Foundation.