Right now, the restaurant business continues to struggle with declining traffic nearly five years after the peak of the COVID pandemic.

After several years of steep price hikes in response to rising restaurant costs, there are signs that consumers have grown less tolerant.

The So What

Restaurant chains are likely to face intense battles over market share and will need to explore new strategies to achieve growth in an environment where increasing menu prices is challenging.

“There is mounting evidence that consumers have reached a tipping point on the price/value equation,” says Jon Roberts, a BCG managing director and partner and an expert on the restaurant sector.  “Brands will need to use more levers than broad price hikes to drive growth.”

In the US:

• Restaurants relied heavily on price (a10% increase in average check amount in 2021, and 9% in 2022) to offset annual declines in traffic of 2% to 3% in the aftermath of the pandemic.
• Although food and labor costs have stabilized after increasing by double digits, restaurant brands have been left with substantially higher cost structures.
• Despite signs that consumer sentiment is improving, research by BCG’s Center for Customer Insight found that US consumers had cut their spending on restaurant dining by 15% over the previous six months.
• The study also found that dining was among their lowest spending priorities for the following six months, regardless of whether they are optimistic or pessimistic about their personal financial situation—a trend seen around the world.

Now What

This challenging business environment is a call to action for restaurants, and four moves are key:

Refresh brand positioning. Restaurants should emphasize their distinct value propositions, grounded in data about what consumers really want. This positioning should serve as the filter for prioritizing internal initiatives and making trade-offs. For example, if you’re all about a fast dining experience, this should be reinforced through operational initiatives, menu design, store format innovation, and so on. Brands who double down on their strengths and activate the full organization to reinforce that advantage achieve outsized growth.

“Winning in the market starts with laser-sharp positioning against specific customer needs, such as fresh ingredients or satisfying a craving,” Roberts says. “When a customer is ready to engage, you want to be the one they pick to meet that specific need.” 

Deliver on the fundamentals: Restaurants have an opportunity to double down on the core operational “tablestakes” of speed, consistency, and accuracy. Given the pace of change over the past several years, many brands have been “making it work” operationally, but opportunities exist to improve on these core fundamentals. Measuring your starting point and addressing any gaps is critical, as consumers won’t give you credit for strategic initiatives if the basics are lacking.

In the longer term, AI, digital, and data will be a key driver of commercial and operational value . Many brands are actively using or piloting these applications today, for example deploying AI to improve forecasting, food prep guidance, and scheduling, or to monitor order lines more effectively. Brands will need to focus these efforts on the areas that are most relevant to the brand’s positioning and start experimenting now in order to capture the next wave of growth.

Revisit menu and pricing strategy. With limited room in the near-term for broad-based price increases and an increased emphasis on value, now is a good time for brands to reset their overarching menu and pricing strategy. For example, striking the right balance between low-and high-priced menu items, emphasizing value options while incentivizing trade-up, and evaluating the effectiveness of past promotions. Additionally, brands should be intentional about their pricing strategy by channel and by geography.

Identify any weak points in your digital channels. Restaurants have opportunities to drive growth in web and applications across the full customer lifecycle. Understanding funnel performance and how customers are behaving at every interaction will help create an action plan. For example, if some potential customers are visiting the site and browsing the menu, but are not actively ordering from it, then that could be an opportunity to make ordering more intuitive.