QSR December 2022

E D I T O R ’ S L E T T E R

Is The Price Right? Inf lation has created a convoluted

I was invited in mid-October to address a room full of Bojangles franchisees at the chain’s fall conference. This was definitely a first on my end. I put a picture of my basset hound on the opening slide and told a story about how some teenagers threatened to break my legs when I was a sports writer. Thank fully, nobody did, but the experience made me rethink my career track. And, in some twisting way, that was day one of how I found my way to the stage that morning in Charlotte. But beyond the nerves and Godfather like anecdotes, I wanted to share some feedback I had from operators. It was a revealing look into the state of things. My presentation covered the industry’s out look, focusing mainly on inf lation and drive-thru. Here’s what struck the loudest chord: I spent a good bit of time trying to answer how much price is too much price. Or, what’s the ceiling for brands to take? I had worked with Revenue Management Solutions in September on this topic. Its data, which analyzed in-store price increases by percentages (Q2 2021 versus Q2 2022) across 25,000 quick-service outlets, examined at what percentage price increases started to create a dimin ishing effect, ultimately hurting traffic and negating some/all of the additional net sales recorded in recent months. Put differently, at what inf lection would price increases result in such an erosion in traffic that the upside vanished? What RMS discovered was net sales hit the highest threshold at about 13 percent. Beyond, traffic was so negatively dented that net sales turned downward. It’s a straightforward indicator. You can go up to 13 percent in price but should be wary thereafter. However, what was interesting

to me was the reaction between extremes. A franchisee asked whether I thought it made sense to sit at, say, 11–12 percent of price, in order to make sure they could pay the ( suddenly more expensive ) labor needed to staff up. In RMS’ data, the traffic decline at 6–10 percent of price was negative 4.6 percent. At 11–15 percent, traffic dropped 5.3 percent ( it cliffs at 15 to negative 10.2 percent traf fic ). Just looking outside in, there doesn’t appear to be a ton of difference in guest kickback from 6 to early double-digit price increases—anywhere in that 11–13 percent range. My answer then: Yes. From all the data I’ve seen and operators I’ve spoken with, consumer studies, et al, it seems a better trade off to pass along price below the threshold than it does to cut hourly positions. Because one thing has felt very clear: Value doesn’t play by the old rules in this inf lationary climate. It’s no longer as simple as racing to the $1 bottom. More than anything, value is defined by whether or not somebody feels the experience was worth what they paid for it. As we discussed at the conference at length, guests today are paying more, not just in food, but in everything they’re doing. Interestingly, it’s a reality that’s resulting, somewhat, in higher-income consumers trading down to fast food (14 percent noted this in Bludot’s study). To date, the gains in price, alongside off-premises expansion, have shielded quick-serves. However, we can’t lose sight of the backbone and purpose of this seg ment and how far it all stretches. Know your customer and keep asking questions. We’ll find the answers together.

value equation for a sector built on it.

DKLEIN@WTWHMEDIA.COM QSR MAGAZINE

Danny Klein, Editorial Director

ROSIE ROSENBROCK

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DECEMBER 2022 | QSR | www.qsrmagazine.com