Rising wages prompt restaurant operators to strategically increase menu prices without alienating consumers.
CHICAGO, July 11, 2016—As minimum wages increase across the country and the labor pool tightens, restaurant operators are faced with the challenge of finding ways to offset higher labor costs without driving away customers. For most operators, wage increases translate into price hikes on menus, thus posing the risk of losing valuable customer visits. Operators have to prioritize solutions in order to effectively navigate between the pressure to raise menu prices within the competitive landscape and consumer perception of value.
“With many operators serving lower- and middle-income groups that seek value in the form of dollar menus and combo meals, paying higher wages will ultimately result in higher menu prices,” says Darren Tristano, President of Technomic. “Operators need to best assess where consumers are willing to spend more and take price increases that will be easily accepted [to] avoid losing customer visits.”
Lower commodity prices have, in part, made these wage pressures more manageable. Since May 2015, wholesale prices have fallen year over year in some high-volume categories: Eggs (-50%), Beef/Veal (-21%), Processed Turkey (-8%), Fish (-6%) and Chicken (-5%). However, while commodity prices have dropped, menu prices seem to be increasing rather steadily. For the time being, this trend appears to help offset the effects of higher labor costs as many operators are giving back price increases through higher wages.
In fact, data from Technomic’s PriceMonitor program shows that average prices have risen at some midscale, family style restaurants since the first quarter of 2015. For example, average prices at Denny’s have increased roughly 4% across 13 U.S. markets since the beginning of last year: Cheeseburgers (+3%), Chicken Strips/Nuggets (+4%) and Steak & Eggs (+4%). Similarly, IHOP shows average price increases across the same markets, according to PriceMonitor data: Bacon Cheeseburgers (+3%), Chicken/Country Fried Steak (+3%) and Turkey Sandwiches (+4%).
PriceMonitor serves as an effective tool for helping operators better understand the current competitive environment, allowing restaurant brands to hone in on market-specific pricing of their competitors and gain insights to manage consumer price sensitivity. As a fully customizable price-tracking program, PriceMonitor is a time-saving service that allows Technomic clients to easily analyze competitive chain menus across U.S. and Canadian markets, ultimately leading to more informed decision-making. This service also helps clients track similar categories of menu items over time to see price fluctuations as well as market standings.
Technomic Inc., a Winsight company, delivers a 360-degree view of the food industry. It impacts growth and profitability for clients by providing consumer-grounded vision and channel-relevant strategic insights. Its services range from major research studies and management consulting solutions to online databases and simple fact-finding assignments. Its clients include food manufacturers and distributors, restaurants and retailers, other foodservice organizations, and various institutions aligned with the food industry. Visit Technomic at technomic.com.
About Winsight, LLC
Winsight LLC is a recognized leader in business-to-business media and information services for the convenience-retailing, foodservice and grocery industries. Winsight has an extensive media portfolio, including five publications: CSP, Restaurant Business, FoodService Director, Convenience Store Products, and Winsight Grocery Business. Winsight also offers a suite of digital products, including websites, e-newsletters, webinars, video products, mobile and tablet apps, and custom marketing solutions. In addition to more than 12 major EduNetworking conferences and advisory meetings, Winsight also produces seven exclusive, large-scale executive-level conferences: Restaurant Leadership Conference, Global Restaurant Leadership Conference, Outlook Leadership Conference, Convenience Retailing University, FSTEC, MenuDirections and Restaurant Directions. In 2015, Winsight acquired Technomic Inc., a provider of primary and secondary market information and advisory services for the food industry. For more information on Winsight and its brands, go to www.winsightmedia.com.