Commentary

A little online burger buzz teaches a lot about menu prices

Polls and restaurant traffic data this year have made it relatively clear that limited-service restaurant customers today are increasingly concerned about the price they pay when eating out. Even as the fundamentals of the American economy remain strong, consumers continue to grow weary about spending money on fast food.

March 27, 2017 by Josh Anish — Head of Content, Quantifind

Polls and restaurant traffic data this year have made it relatively clear that limited-service restaurant customers today are increasingly concerned about the price they pay when eating out. Even as the fundamentals of the American economy remain strong and the stock market flirts with all-time highs, consumers continue to grow weary about spending money on fast food.

It's living proof of the idea that what happens on Wall Street doesn’t always trickle down to Main Street. For solid evidence that's how consumers are feeling, look no further than the following data chart.

In the graphic, the blue line shows the increase in the amount of online conversations predictive of sales in the QSR burger category over the last four years. As you can see, at the start of that period in May 2012, the three-month average for these types of conversations involving the burger space alone was 0.73 percent. Then look to the last three months charted. You can see that number grew significantly — in fact, about 81 percent — over a four-year span.

Granted, you might point out that increased conversation around this topic doesn't mean the talk is all negative. Maybe, for instance, people are actually remarking how tremendous a value burgers have gotten to be when eating out.

Or maybe not.

Look now at the green and red areas of the chart. Those represent the sentiment consumers are expressing in their conversation on this topic. As you see, from May 2012 to January 2015, sentiment was evenly split between positive and negative.

But since early 2015, things begin to increasingly skew negative (toward the red area). Then in just the last three months, negative sentiment grows, showing that 72 percent more fast food burger customers think prices are too high, versus being a good value.

Why is this happening?

The best answer that emerges about the cause of this increasing consumer negativity around fast food prices is that food purchased in groceries for consumption at home has just gotten to be too great a value to pass up. Or as Wendy's CEO Todd Penegor put it on a recent earnings call, "It’s gotten a lot cheaper, relatively speaking, to go get fresh beef at your local butcher and go home and grill it."

This assertion is backed up by the fact that prices for uncooked beef are down nearly 9 percent from a year ago. And as it turns out, the reason for that is that feed corn for cattle has dropped substantially in price, as well. In short, the supermarket is sucking away restaurant customers.

How restaurants can stay competitive

The best thing competitive restaurant brands can do then, is work toward some kind of price stability for their menus. This graphic shows why.

In this chart of online talk over the last 24 months, the blue conversation line reflects the chatter around Wendy's pricing. The orange line — with all its erratic ups and downs — reflects the chatter around the same subject for Five Guys pricing.

This suggests Wendy's customers are showing less sentiment and find the chain's prices more amenable, while Five Guys customers indicate the chain's more regional approach to pricing, as well as its incremental price changes are making customers nervous.

In short, it appears that chains which make concerted effort to keep prices relatively stable and competitive with most other chains may end up the winners in the long run. So the take-away for restaurateurs is simply that it's wise now to figure out ways to both offer value and price consistency. The buzz among customers shows it may be the best approach to keeping them coming back and maybe even bringing their friends.

Photo: iStock

Graphs: Provided

Photo: iStock

Graphs: Quantifind