- Household financial outlook declines over six-month period; consumers plan lower spending to address persistent debt concerns, budget pressure, financial anxiety
- Perception of fast-food value records biggest six-month decline among restaurant categories; fine dining only restaurant category to increase value perception
- Consumers reluctant to trade down to cheaper food or restaurants; cutting back on eating out, ordering take out as menu price increases outpace inflation
- Younger consumers (under 35) showing decreased appetite to splurge and treat themselves at restaurants, reflecting generational pullback and pessimism
- Majority of operators embrace technology; say their business model needs to change – menu and service offerings most poised for near-term revamp
NEW YORK (September 4, 2024) – The value perception of fast-food restaurants declined over the six-month period ending in August as debt-laden consumers plan spending cutbacks amid persistently high financial anxiety and a decline in near-term optimism, according to the 2024 report on the state of the restaurant industry published by AlixPartners, the global consulting firm. Instead of seeking cheaper food and restaurants, however, diners plan to eat out less or cut back on takeout.
AlixPartners surveyed more than 1,000 U.S.-based consumers in recent weeks, following similar consumer-sentiment polling in March. There is rising concern about budgetary issues and a near-consistent level of respondents being "very" or "extremely" concerned about the economy. Debt, held by 60% of respondents, looms large in consumer psyches, with 50% of debt holders planning lifestyle changes, the study found.
The share of financially anxious respondents reached 37% in August, nearly equal to results fielded in March but up sharply vs. 28% of respondents in the summer of 2023. Only 38% of respondents say the economic outlook will improve over the remainder of 2024, compared to 48% that had expected improvement when polled in March. Respondents are increasingly pessimistic about household financial status, with roughly 25% of respondents now saying their own financial outlook will worsen in coming months, up from 19% in March.
The 'great trade up'
Value perceptions are evolving as well. Even as budgets are stressed, the appetite for elevated products and experiences remains healthy. Some 80% of respondents say fine dining's is offering as a good or great value, up from 74% in March. Roughly twice as many consumers will reduce dining out before they will reduce items ordered, opt for cheaper items, or visit less expensive restaurants.
Fast-food options, meanwhile, aren't offering adequate bang-for-buck, with more than a quarter of respondents saying value declined or significantly declined, the study found.
"We are potentially seeing the beginnings of what we call 'The Great Trade-up' in the industry," said Andrew Sharpee, managing director and partner in AlixPartners' restaurants and hospitality practice. "Consumers splurged on better quality products and experiences coming out of Covid. As the wallet tightens, this sustained taste for the finer things in life has consumers making different choices with their discretionary dollar than the traditional way consumers cut back."
Diners are accustomed to steady menu-price increases. Over the past two decades, the pace of restaurant price increases has consistently outpaced broader economic inflation. The price of popular hamburgers at fast-food restaurants, for instance, has increased at least 130% vs. 2002 prices vs. the broader consumer inflation rate of 78% over the period. AlixPartners' analysis finds rising labor rates have disproportionate influence over today's menu inflation trend.
The largest decline in value perception over the past six months was reported by Baby Boomers (who have lived through decades of menu inflation) as well as middle-class and wealthier consumers, according to the survey. However, younger buyers are likelier to pinch pennies, with Gen-Z respondents more likely to be pessimistic about the economy and less willing to splurge.
"We're seeing a transition of behavior not only in dining habits, but across many adjacent consumer sectors including travel and entertainment," said TJ Wommack, a partner at AlixPartners. "Consumers are balancing desire to spend on discretionary experiences versus hard goods. While offering quality food at an affordable price is important, operators must recalculate their approach to overall value as diners stretch their dollar."
Service continues to reign supreme
A separate survey of 140 restaurant operators found a majority of these businesses are disrupted. Six in ten say their business model needs to change immediately, with product and service offerings most poised for transformation, according to the survey. Inflation, supply-chain stability and regulatory developments represent the largest threats over the next 12 months. As we look across the industry, concepts that have delivered on service consistently and stayed true to their product offering generally perform well even despite the pressures on consumers.
Additionally, in this year's survey, operators appear more welcoming of technology's role in potentially improving their business, with 59% citing automation and artificial intelligence as the largest opportunities within the next 12 months. That is a dramatic shift vs. the 2023 response, when a majority of operator respondents listed automation and AI as the largest near-term threat. The benefits of effective technology implementation are welcomed by restaurant employees, according to AlixPartners' research, driving efficiency and service improvement. Consumers cite similar benefits of technology being smartly deployed.
"Technology is not a cure-all for the hospitality industry, but it is clearly viewed as more of an asset by operators than in the recent past," Derrick Yarbrough, a director in AlixPartners's restaurant, hospitality, travel and leisure practice, said. "Today's diners and the employees who serve them are heavily influenced by technology in their daily lives and will embrace smart innovation that improves overall experience and drives satisfaction."
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