QSR February 2023

E D I T O R ’ S L E T T E R

Restaurants and the ‘Lipstick Effect’

I ’m not an economist. I can’t count the number of quarters in my daughter’s piggy bank before getting a headache. As I type this in early January, I’ve browsed a lot of articles concerning a potential recession, with some claim ing there’s a current one, and what it all means or could mean or where it heads next. I can’t speak to the curve or the recovery line, but I do want to highlight something I came across recently that speaks to a broader theme. Generally (and why COVID was nothing like 2008–2010 ), foodservice, especially fast food, weathers economic downturns better than most. It’s a ref lection of the so-called “Lipstick Effect,” where con sumers are willing to buy lower-priced luxury goods when wallets tighten. Say, instead of a fur coat, you get expensive lipstick. In the case of restaurants, think of families replacing vacations or other excursions with a night out at their favor ite eatery, or a bag of takeout. But how does this carry forward into today’s landscape? Something I’ve heard from a lot of operators is that consumers have begun to self-segment their behavior to fit the climate. Some are eating out less frequently, yet doing so more indulgently. Starbucks, for one, speaking nothing of its traffic, has seen beverage modifiers balloon into a $1 billion business. Younger consumers in particular are taking advantage of a cold customized beverage program that’s replaced revolving LTOs. What it suggests is core and loyal customers are amping up “affordable luxuries” when they feel the experience is worth the price. The real friction that’s popped during this inf lationary era is when brands ask customers to pay more for

something they’ve historically paid less for. Or, even more so, try to justify the tag of “shrinkf lation” in a universe that built its base on value and abundance. However, guests don’t appear to be pushing back nearly as much for things they choose. One example: delivery. As you can see on page 8 , price is hardly a consideration for that cohort. Getting back to the data I teased earlier, the Loyalty Report 2022 from Paytronix showed 55 percent of restau rant loyalty customers increased their average check size by more than the cost of menu items, indicating inf lation increased loyalty member visits. Simply, loyalty has become a tool for mitigating difficult economic conditions. As the company pointed out, while the exact relationship between loyalty check size and prices can be difficult to determine, the trend is clear—loyalty members continued to spend despite inf lation. Starting around March 2022, loyalty member checks lifted in lockstep with prices. In my view, core users are going to stick as long as brands give them the means and support to do so. Along the way, loyalty also empowers restaurants to present a new face of value that goes beyond the deep discount—one that’s personalized and catered to what a guest actually wants. In the end, it’s something worth paying for.

The quick-service consumer has already begun to vote with their wallets.

DKLEIN@WTWHMEDIA.COM QSR MAGAZINE

Danny Klein, Editorial Director

ROSIE ROSENBROCK

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FEBRUARY 2023 | QSR | www.qsrmagazine.com

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