Home News 2016 Full Service – Your “Sweet Spot” Has Eroded

Full Service – Your “Sweet Spot” Has Eroded

Foodservice Brief — September 2016

Over the past few years, restaurant operators have been increasing prices to regain some of the margin they have lost as a result of increased costs of doing business. However, making these adjustments is easier said than done – consumers continue to demonstrate they remain very price-sensitive. In our latest Executive Topline we demonstrated how sensitive to price points QSR consumers seem to be at lunch. Now we’ll explore the same topic for full service operators at their most important meal occasions. In the case of midscale operators, we will examine the morning meal occasion, and determine the strength of the value proposition. For casual dining dinner, how much has the value proposition eroded as a result of higher price points? When considering future menu price adjustments, it is imperative to know where consumers’ mindset is today. What is their tolerance for future price increases?

Align your business with today’s consumer mindset

When aligning your business with where the consumer mindset is today, there are two key factors to consider with regard to customer satisfaction and pricing strategies:

  • Within what check range do consumers give restaurants their highest value rating?
  • Are your menu and messaging focused where consumers say you deliver the most value? If not, where should you consider making changes?

To understand just how sensitive consumers are to price at midscale morning meal and casual dining dinner, we have examined specific check ranges for restaurant meals and their ratings among consumers on various aspects of value. Has the “sweet spot” moved at these two visit situations?

The opportunity to positively impact traffic through menu prices

A review of traffic distribution by check range enables us to understand where the bulk of the traffic falls, by price point. It also reveals the price points that seem to leave consumers the most satisfied. Or, in other words: where consumers’ "sweet spot" exists. This review is based on the CREST® Value Composite Score, which is based on top box ratings for three key measures of value:

  • Excellent rating on “affordable to eat there often”
  • Excellent rating on “good value for the money”
  • Definitely will go there – revisit intention

By examining the relationship between the Value Composite Scores and check, we can identify the price points that drive consumers to the restaurant. These are the price points that are most in play given current consumer spending concerns about price and their willingness to spend money in restaurants.

Midscale morning meal: the price point has moved too high and has left consumers less satisfied

We have chosen to examine midscale morning meal since it has been on the decline as a result of QSR growth at the same daypart. For the year ending June 2016, visits to midscale concepts are down 6 percent at the morning meal, weaker than any other meal occasion. Undoubtedly, QSRs’ new product development and new players entering the market have contributed to midscale weakness at breakfast. However, we question whether these activities along with the need for convenience, particularly during the weekday, are entirely responsible for the weakness for midscale operators offering breakfast. Has QSR become the preferred option due the reasons stated above, or has it simply become less affordable to eat breakfast at midscale concepts on a regular basis? When we speak about visiting on a regular basis, we are referencing visit frequency. We have stated in numerous past briefs that growing your business in today’s marketplace will primarily source from building loyalty – getting those repeat visits. To gain market share at this meal occasion, it is critical to understand at what price points consumers are most satisfied and how that might have changed over time.

First and foremost, the price points at which consumers are most satisfied when visiting midscale places for morning meal have changed rather dramatically. As shown in the chart below, midscale morning meal value composite ratings were highest at what could be a reasonable price to pay for breakfast: the $6-$9 range is where consumers were most satisfied. Growing business at the morning meal requires understanding both the volume opportunity offered during morning hours with various price ranges, as well as those with the highest value ratings. The chart shows the value perception dips considerably when spending is over $9. Even at a price point between $9-12, there is a sizable amount of traffic. However, the value composite is definitely on a downward trend, which becomes even more prominent as the price point moves above $12 per person. Obviously, consumers do not believe this to be a good value for the money, and they don’t think it’s affordable to eat there often. That’s one reason midscale operators are struggling at this meal occasion. To be successful, these restaurant operators must get a handle on where they have their strongest value proposition in the morning, so they can focus on addressing customers’ expectations.

Source: The NPD Group/CREST®

Casual dining consumers’ value perceptions at dinner

It couldn’t be more evident that the price points at which consumers are most satisfied when visiting casual dining places for dinner have fallen rather steeply. As shown in the chart below, casual dining value composite ratings were highest at the $10-15 range. As the price for dinner rose and more traffic moved into the $15-20 range, consumers became more dissatisfied with the value received, affordability, and re-visit intent. What is even more astounding is to see where the bulk of the traffic falls today for dinner at casual dining outlets. Considering this, it’s not surprising to see consumers’ perception of value erodes as the cost of a dinner meal moves beyond $20 per person. Even with all of the incentives offered by casual dining operators, traffic continues to decline at dinner – it was down 3 percent for the YE June 2016 time period. Additionally, recent promotional activity does not seem to have resonated with consumers. Deal related traffic was down 6 percent in the second quarter of the year. Higher price points are definitely one of the main reasons for casual dining weakness. Not only is dinner traffic down, lunch visits have fallen even more steeply, down 6 percent for YE June 2016. As mentioned earlier, restaurant operators have had to take menu prices up in light of their increased cost of doing business and tightening margins. Like midscale operators at breakfast, driving traffic at casual dining dinner requires operators to have a more in-depth understanding of where they provide their strongest value proposition at this meal occasion.

Source: The NPD Group/CREST®

You can use Value Composite Scores to capitalize on areas of particular strength within operator menu offerings – it’s one way to stimulate additional visits. Consider these questions:

  • What sections of your menu provide that strong value proposition?
  • At what check levels do you have your strongest value position?
  • What parts of the menu need attention?

As full service operators attempt to recover lost visits, they need to look for ways to differentiate themselves from the competition. Even in tough times, companies can build demand by doing a better job than the competition when it comes to sparking consumers’ interest and meeting their needs, particularly as it relates to price and the associated value received.

If you are interested in learning more about the Value Composite Score, please contact your NPD account representative, call NPD Restaurant Industry Analyst Bonnie Riggs at 847-692-1767, or email bonnie.riggs@npd.com.

If you are interested in learning more about the Value Composite Score, please contact your NPD account representative, call NPD Restaurant Industry Analyst Bonnie Riggs at 847-692-1767, or email bonnie.riggs@npd.com.

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