Consumer confidence in the economy and personal finances has a 40-year low, according to the latest tracker from GfK.
Decade high inflation and the rising cost of living is a serious concern to consumers, and it is expected that the impact of this will be felt by the hospitality industry through unstable footfall.
Price rises across menus are an inevitable result of soaring energy and food costs as well as supply challenges, with menu prices across both food and drink up +2.5% from February to March 2022.
Premiumisation
Menu price rises may seem problematic at a time when value scrutiny from customers is increasing, but as with lots of challenges in the industry, operators are developing creative solutions.
Premiumisation has been a key trend in the market for the past six years, continuing to evolve and become more specialised.
Branded restaurants tracked as part of Lumina Intelligence’s Menu Tracker Tool are introducing more premium new dishes to drive spend.
In April 2022, new product development increased across restaurant menus, particularly around starters and mains.
New dishes introduced were on average +4% more expensive than the total average and included dishes featuring more premium and indulgent items to justify the higher price points.
The same pattern of premiumisation was found for pubs and bars, with spirits now holding over quarter of pub & bar drink menus.
Whisky in particular is growing share, a more premium alternative with an average price point of +1% more than average spirits across menus.
Personalisation
Hand in hand with more premium alternatives is more customisable options, giving consumers the ability to pick and choose to suit their personal preferences.
Customisation is a brilliant angle for operators to take in a bid to offer more premium alternatives, with smaller changes to dishes more manageable for kitchen staff.
New dishes across pub and bar menus that feature a customisation – including a free swap or an additional upsell - are on average +25% more expensive than total new dishes, with operators tempting customers to trade up to more premium toppings and sauces.
Taking premiumisation a step further, coffee and sandwich shop operators are capitalising on seasonal events to launch premium limited time only specials, that carry higher price points and tempt consumers to trade up.
Operators including Costa Coffee, Starbucks and Gail’s Artisan Bakery, introduced new product lines for Valentine’s Day and Easter including flavoured hot drinks and special biscuits.
Seasonal biscuits and cakes were +42% more expensive on average and drinks were +19% more expensive than the average cost of the items in the channel.
As well as boosting spend, these items also drive brand awareness, offering opportunities for marketing and positioning brands as dynamic and exciting.
Price psychology
Price increases are being driven by food menus overall, with increases focused on mains and sides at +7.1% and +7.7%, respectively.
The average cost of a restaurant main has increased by +£1.34 (+12.0%) from February-April 2022, with operators focusing increases on the most consumed courses.
Pricing psychology is being used by restaurants to mitigate the impact of rises, and is one of the most common tactics used by operators to entice possible customers.
Prices ending in X.99 or X.95 are perceived to be cheaper than they are, supported by psychological theories such as left-digit anchoring.
Restaurants are using left digit anchoring to mitigate price increases to main dishes, with dishes ending in X.99 and X.95 carrying the highest prices and seeing some of the highest increases.
Left digit anchoring, more commonly known as charm pricing, is also utilised thoroughly by QSR operators.
Nearly half (42%) of all dishes on QSR menus end in X.99.
Known by consumers for its low-ticket and convenient nature, QSR operators are using left digit anchoring on more expensive menu items to retain accessible pricing credentials as wider pressures force price rises.
Menu mechanics
The initial impact of the soaring cost of living is becoming clear through consumer eating out behaviours.
Results of a four-week period to 17 April 2022, covering the Easter holidays, were disappointing, with penetration, frequency and spend on eating out remaining flat month on month.
The impact of menu price rises on consumer spending behaviours will become clearer over the next few months.
What is already abundantly clear is that hospitality remains a hot bed for menu mechanics and innovation, that is expected to continue to overcome challenges.
- This piece draws on data from Lumina Intelligence’s Menu Tracker and Eating and Drinking Out Panel
