Traffic Still Sad as Prices Rise With Income
Americans saw their household income grow 5.2% on average to $56,500 in 2015. That’s the largest surge in income ever recorded by the Census Bureau since it began releasing the data in 1967.
With that surge, American consumers have returned to income levels last seen in 2008, the first year of the Great Recession, according to the Wall Street Journal. And as of August, job growth stood at 182,000 jobs a month and hourly earnings have increased 2.8%. The bump in household income was even more pronounced for low-income households. Those in the bottom 10th percentile saw income grow by nearly 8%.
So why isn’t everyone spending that money at restaurants? Well, prices keep rising, too.
Ticket prices crept up 2.3% in August across the segment, according to analysis from research firm TDn2k. It’s a slowdown of .5% over July and the lowest change since March, but it’s still affecting visits. Especially as food away from home has continued to cut prices, sliming grocery bills by .7% in the quarter ending with July.
Unsurprisingly, as those prices rise, comp traffic has sunk, dipping 2.7% in August, a slight slowdown in traffic loss from the negative 3.9% recorded by TDn2k in July.
Segments that have slowed their price bumps have been rewarded with traffic, though sales growth is still lackluster.
“Given the current environment, characterized by a continued decline in traffic, drops in average guest check growth have been associated with a boost in traffic, but the impact on incremental sales is usually underwhelming,” said Victor Fernandez, executive director of insights and knowledge for TDn2K.
According to Fernandez, fast casual, family dining and casual dining all experienced a better than 1% traffic bump over July. The rest saw traffic grow by less than 1%. The only exception there was fine dining, which accelerated check growth and still saw “robust traffic growth.”
That’s a puzzling factoid in this era of negative traffic and price-driven comps, but not when you look at the lunch daypart.
According to NPD Group, lunch—which accounts for one third of restaurant visits—has been hit the hardest in terms of traffic. In the last quarter, lunch visits declined by 4%, the steepest decline of all dayparts, according to the research firm.
The culprit is, again, price, according to Bonnie Riggs, a restaurant industry analyst at NPD.
“Historically, foodservice lunch has been the occasion where consumers didn’t want to invest a lot of time, money, or energy into this meal,” said Riggs, who said the “sweet spot” for pricing has come and gone. “It’s apparent by the drop in lunch traffic that the current value proposition isn’t meeting these needs.”
She said lunch prices have risen by as much as 5% in some segments, exactly in line with average household income growth for 2015, and weekday lunch visits have dropped 7%.
Only QSR has been able to maintain visits with deep discounts, but even there, guests generally don’t take advantage of those discounts. Just one in four QSR guests take advantage of the deals, leaving the rest to pay an average of $8 for a fast food lunch.
Riggs said a 24% rise in telecommuting over the past decade has had a substantial effect, as has an 8% annual increase in online shopping, keeping people away from post-shopping snacks.
It also appears that customers are skipping the lunch daypart and spending their money on a quick breakfast or a dinner that costs just a little more without the rush of lunch. Breakfast traffic has increased 1% and lunch sank just 1%, according to NPD data.
Few restaurants wants to start a price war, but in this time of oversupply and grocery deflation, it might be time to at least slow down on prices.