ith the rise of inflation in 2022, consumer spending and behavioral patterns have been shifting across the board. C-store and restaurant operators alike will have their work cut out in trying to adapt to these significant price hikes and the changes they will inevitably bring to the industry while still retaining their loyal customers.
Professor of economics at Western Washington University and founder and president of Study Groups (a company that specializes in conducting study groups for c-store retailers and gas vendors) David Nelson describes inflation as being at the “highest level it has been in 40 years.”.
This unprecedented rise is due to a combination of factors: lasting impacts of the COVID-19 pandemic such as labor costs/shortages; the current Ukrainian crisis; supply chain difficulties; fuel costs; and monetary policy. Overall, it’s safe to say that customers have not been enjoying this economic pinch and have been adapting their spending habits accordingly.
So, how does inflation affect restaurants and c-stores? One of the biggest impacts of inflation for c-stores and restaurants has been a reduced customer spend on food service via a decrease in customer frequency. By this, we mean a direct decrease in the number of customers actually visiting c-stores and restaurants. Due to rising prices, customers are now seeing a noticeable cost difference on their checks, paying more for foodstuffs and dining out experiences but receiving a reduced quantity of food at the same time.
This has caused a widespread decrease in the amount that customers that are visiting restaurants and c-stores to buy food. So much so that In comparison to pre-pandemic statistics, customer frequency is down between 10 and 20% across all restaurant segments according to Cardlytics.
When customers do spend, they are generally buying fewer products and restricting their consumption amid this financial uncertainty. This reduction in customer frequency is certainly causing concern for retailers as they look for solutions to mitigate the reduced visits.
Despite this decrease in customer frequency, many c-stores and restaurants are nonetheless increasing in their food prices. Overall, the Bureau of Labor Statistics has shown a 5.9% rise in prices at quick serve restaurants (QSRs) and a 7.1% increase in full-service restaurant prices in the last year. These statistics are set to surge until the end of the year.
Arguably, this could eventually make the situation worse for retailers and food vendors as customers may be dissuaded from ordering out or buying food from c-stores even more. This will particularly be the case for lower-income households who are already struggling to combat inflation as it is. Thus far however, increased prices have had the effect of counterbalancing decreased frequency.
While retailers such as Jonathan Polonsky, CEO of convenience store Plaid Pantry in Portland states that inflation is ultimately affecting every aspect of business down to rent, repairs, building maintenance and wages, he does remain hopeful for now stating:
Customers are still willing to spend, but a slight decrease in lottery sales tells me they have a little less than they did this time last year…We have not seen folks trading down yet
However, the same rates of success cannot be said for all vendors and the impact of inflation on consumer habits remains unclear for food retailers and restaurants.
While takeout delivery boomed throughout the pandemic due to factors such as convenience, health concerns and the generalized restriction of movement, this prosperity is now under threat.
Online check orders are decreasing when compared to in-store orders in limited-service restaurants suggesting another change in consumer behavior due to inflation. Online food ordering activities have widely declined from 2021 to 2022 in both roadside pickups (in-store and curb side) as well as food delivery services (including first and third-party providers).
It is generally unclear as to why this decrease is occurring and why consumers are changing their spending behaviors in this way. However, some argue that people making online orders may be substituting several of their usual purchases for cheaper alternatives they already have in their cupboards at home. This includes products like rice or sodas that they would have once ordinarily bought from a delivery service.
Similarly, consumers may be branching out less, not sampling as many new food items because they are sticking to those they found during the pandemic which they have already tried and tested. Again, this ambiguity is rightly causing concern amongst c-store retailers and restaurant owners.
Although it is difficult to predict what will happen in the future, inflation will certainly continue to rise in 2022. Therefore, c-stores offering food services and restaurants need to get ahead of the game to tackle rising costs before it’s too late.
If this inflation continues, restaurants and c-stores alike will need to organize their food services to create higher margins. Whether this is done through inflating prices even more, reducing product sizing, selling own-brand products for less, or creating enhanced loyalty schemes for customers, retailers need to find ways to keep their customers spending on food services.