Earlier this week, a Tik Tok of an Idaho man complaining about the price of his McDonald’s meal resurfaced, following McDonald’s reporting an increase in revenue from a “strategic” hike in menu prices. In the video, patron Christopher Olive complains that $16 for a burger, large fry, and drink is “crazy” and “no longer affordable for the average American.” While this video is a funny anecdote, Olive’s video points to a significant trend in consumer spending when it comes to food.
At the Global Restaurant Leadership Conference earlier this week, Carlos Herrera, Chief Economist for Coca-Cola North America, claimed that consumers are paying more for food than ever before, causing them to buy less overall. Over the last two years, restaurant prices have increased faster than the overall rate of inflation. In September of 2023, the consumer price index was 3.7%, compared to an increase of restaurant prices of 6% over the last year. According to Herrera, “It’s not because we’re greedy bastards. It’s because we have the costs.” (Restaurant Business)
It’s especially challenging for operators because in addition to a drastic increase in cost of goods, labor has continued to go up as well. In September, California passed a law to raise minimum wage for fast food workers to $20 per hour. A significant bump from standard minimum wage across the United States, some believe this law will have a domino effect on other major states throughout the country, potentially becoming an issue for all restaurant operators moving forward.
In turn, operators have had no choice but to put the onus on consumers to make up for these changes, causing a real effect on the number of times a consumer choses to eat restaurant food in a given week. This is why Hererra is deeming 2024 “The Year of Management.” He believes that restaurants have run out of room to further increase prices and must find ways to drive sales or cut costs without overhauling their business. Based on overwhelming data from 2023, the clear answer is the embracement of technology. (Restaurant Business)
For Yum! Brands, they were able to drastically increase total sales through their wide range of digital channels. They are on track to reach $30 billion in digital sales by the end of 2023, up from $12 billion four years ago when they first started to seriously invest in their digital infrastructure. In a Q3 earnings call, CEO David Gibbs said that their digital business grew by 20% YoY, exceeded 45% globally in Q3, and represented more than $7 billion in sales in Q3. In the eyes of Gibbs, “we like everything about those digital sales dollars. Our customers have higher checks and higher frequency whenever we transition sales to digital, plus we get all the benefits in terms of more efficient operations, which help our franchisees sustain strong unit economics. (QSR Magazine)
When it comes to specific technology that is positively impacting these brands, tablets and kiosks have had an immense impact on both increased sales and lowering costs. Outback Steakhouse, who just completed their overhaul of introducing tablets into their 689 U.S. locations, expects them “to contribute a projected $55 million in productivity savings this year. It also hopes the speedier experience will translate into better traffic.” (Restaurant Business)
In addition, brands such as Shake Shack, El Pollo Loco, and Burger King have leaned into kiosks, citing higher check averages, higher margins (due to no cashier), and a huge inflow of customer data as the driver. Shake Shack quotes that their recent investment in kiosks has resulted in them making up more than 50% of total on-site sales in 2023. According to CFO Katie Fogerty, kiosks have become “Shake Shack’s most profitable sales channel.” Shake Shack has also been able to cut their labor by about “50 hours per week”, a significant saving on one of the biggest costs of any restaurant. (Business Insider)
Even technology such as Pour My Beer, one of Branded Strategic Ventures very first investments, has become invaluable in this age of increased costs. Pour My Beer allows guests to pour their own beverage through a dispenser in a restaurant or bar, reducing the need for labor. The machine pays for itself, with 80% of customers who purchase a dispenser breaking even in the first year, and then leading to incredible statistics such as 50% greater profits, 45% increased sales, 3% less waste, and a 20% decrease in labor cost. This is only one of many Branded Strategic Ventures portfolio companies that transforms restaurant P&L statements on a daily basis.
As the history of the American economy has shown, goods and labor are only going to increase in price over time. While consumers will continue to pay for food and beverage, the more restaurants increase their prices, the less people are going to dine out. Eventually, prices will reach such a point that some consumers will look towards alternative methods for food and beverage, outside of restaurants. Therefore, it is the responsibility of operators to find ways to work smarter, and not harder, to keep demand where it needs to be. Technology, as it becomes more engrained in the fabric of modern hospitality, is the necessary and logical solution to the challenges facing the hospitality industry.