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Restaurants Aim to Steal Share Amid Traffic Drop · Choppin’ It Up by Bloomberg Intelligence

0:21
Speaker 1: Welcome to Chopping it Up. I'm your host, Mike Hallen,
0:24
Speaker 1: the senior restaurant and food Service analyst at Bloomberg Intelligence.
0:28
Speaker 1: Today we're joined by Mark Cooperman. He's the chief operating
0:31
Speaker 1: officer of Revenue Management Solutions. Thanks for doing us, Mark, Oh,
0:35
Speaker 1: my pleasure and so it's good to see you man.
0:37
Speaker 1: It's been a while.
0:38
Speaker 2: Absolutely.
0:40
Speaker 1: Why don't we start out by, you know, telling the
0:42
Speaker 1: audience a bit about RMS and the service that you
0:45
Speaker 1: guys provide.
0:46
Speaker 2: Sure, So, RMS or Revenue Management Solutions, we're a tech
0:52
Speaker 2: enabled company helping brands optimize their pricing to drive full
0:58
Speaker 2: flow through the profit of ability, while at the same
1:01
Speaker 2: time managing transactions. So we've been in business about thirty years.
1:06
Speaker 2: We work with over one hundred thousand restaurants worldwide. We
1:11
Speaker 2: collect competitive prices for over one hundred and seventy thousand
1:14
Speaker 2: restaurants worldwide. Our business is really driven around understanding the
1:20
Speaker 2: dynamics around customer purchase behavior and whether or not future
1:25
Speaker 2: changes or what changes can be made to minimize the
1:28
Speaker 2: impact of guests, maximize flow through to the brands that
1:33
Speaker 2: we work with, and then manage those transactions over the
1:36
Speaker 2: long term. Right. We've seen over the last couple of
1:39
Speaker 2: years when you take a big price increase the impact
1:42
Speaker 2: it can have on guests. And our focus is really
1:44
Speaker 2: on long term profitability, not necessarily meeting a quarterly goal.
1:49
Speaker 1: Obviously a super hot topic right now. So you and
1:54
Speaker 1: the team recently did a report on quick service restaurants sales,
1:57
Speaker 1: so i'd kind of like to start out there. You know,
2:01
Speaker 1: we all know same sort of sales of jumped for
2:03
Speaker 1: most chains pretty significantly since twenty nineteen. But you know,
2:08
Speaker 1: you did some great work indexing back to twenty nineteen,
2:12
Speaker 1: which not enough analysts are doing these days, so that
2:17
Speaker 1: was very nice to see. Can you talk a bit
2:19
Speaker 1: about the divergence between pricing and traffic over that time
2:24
Speaker 1: span and what that could mean for the QSR industry
2:28
Speaker 1: sales going forward?
2:30
Speaker 2: Sure, So, as we look across the industry, what we've
2:35
Speaker 2: seen is that since twenty nineteen, QSR is down about
2:40
Speaker 2: twenty percent in traffic, right, and but we're still talking
2:44
Speaker 2: about positive sales, and that's really driven by a pretty
2:48
Speaker 2: significant increases an average check to the magnitude of about
2:51
Speaker 2: forty percent. Now, that's not necessarily driven across all all
2:58
Speaker 2: segments of the menu or all day parts. But on average,
3:02
Speaker 2: that's the impact that we're seeing across the industry, and
3:04
Speaker 2: that's pretty significant. As we're going into twenty twenty four,
3:08
Speaker 2: there's a lot of weight and see and looking at
3:11
Speaker 2: competitors and really trying to understand who's that first mover,
3:15
Speaker 2: what are they going to do, and how are we
3:17
Speaker 2: going to react to that. There's no question what we're
3:20
Speaker 2: seeing is a lot of R and D around what
3:23
Speaker 2: should we do when someone makes let's say a significant
3:27
Speaker 2: value play, right, but to be the first mover on
3:30
Speaker 2: value right now? And we can talk about value and
3:33
Speaker 2: what that means. That's where we see a lot of
3:35
Speaker 2: uncertainty going into next year.
3:37
Speaker 1: Okay, what's the spread that you found between average check
3:42
Speaker 1: gains at takeout versus in restaurants? Right, So we'd assume
3:46
Speaker 1: that that change we're taking more on the delivery side, right,
3:53
Speaker 1: But if you could talk about that spread, I think
3:55
Speaker 1: that would be interesting.
3:56
Speaker 2: You know, the spread that I was thinking about, you know,
4:00
Speaker 2: going into this was really about the timing of the
4:03
Speaker 2: changes that we saw across the menu. Right.
4:06
Speaker 3: So for example, the first day part.
4:09
Speaker 2: That was really hit was lunch okay, followed by dinner,
4:14
Speaker 2: and then what we saw in twenty twenty three was
4:16
Speaker 2: finally breakfast being touched and that had a really significant
4:21
Speaker 2: impact on traffic for breakfast. So breakfast was working, was
4:25
Speaker 2: actually doing really well. In twenty one twenty two, really
4:30
Speaker 2: no price had been put into most systems, and then
4:33
Speaker 2: in twenty twenty three we saw a lot of price
4:36
Speaker 2: to the tune of fifty one percent relative to twenty nineteen,
4:40
Speaker 2: and so that really accelerated some of the changes that
4:44
Speaker 2: you know are impacting restaurants at breakfast. I think the
4:47
Speaker 2: channel that really stands out to me that's changed so
4:51
Speaker 2: much as dining right that we've seen the customers. You know,
4:56
Speaker 2: what COVID did was it trained customers to use the
5:00
Speaker 2: drive through and the convenience of drive through. And while
5:03
Speaker 2: we've seen a lot of changes since COVID, that purchase
5:06
Speaker 2: behavior right of shifting back to dine in has not
5:09
Speaker 2: really happened, right, And therefore we do see the QSR
5:13
Speaker 2: picked up, and we also see that that takeout and
5:17
Speaker 2: delivery benefited from that.
5:19
Speaker 1: Yeah, so what does this mean for store footprints?
5:22
Speaker 2: You know, it's an interesting question in the context of
5:25
Speaker 2: existing restaurants versus future restaurants, right. You know, for existing restaurants,
5:31
Speaker 2: the opportunity right now is really taking a look at
5:34
Speaker 2: late night and drive through, right, and we'll talk a
5:37
Speaker 2: little bit about the labor model and how that relates
5:40
Speaker 2: to that day part. I think that brands are going
5:43
Speaker 2: to have to really look at what experience they want
5:46
Speaker 2: to provide and dine in versus drive through. I think
5:50
Speaker 2: we're reaching a point here where I think in this
5:53
Speaker 2: industry we have to really go back to understanding value.
5:57
Speaker 2: Value being the relationship between the guests experience, whether it's food,
6:02
Speaker 2: speed of service, and price. And I think in dining
6:05
Speaker 2: we've lost a little of that, right, What is that
6:07
Speaker 2: extra value associated with dining in the restaurant? I think
6:10
Speaker 2: brands are going to have to solve for that if
6:12
Speaker 2: they want to fill in guests again during that day point.
6:15
Speaker 1: Okay, col let's get back to breakfast a little bit
6:17
Speaker 1: because that, in my opinion, that was probably the biggest
6:20
Speaker 1: surprise in the report, the fact that there was you know,
6:24
Speaker 1: massive outperformance of the breakfast day part for QSR since
6:29
Speaker 1: twenty nineteen. You know, that day part was a huge
6:32
Speaker 1: underperformer in the early days of the pandemic due to
6:36
Speaker 1: increased telecommuting and family jains. Chains continue to underperform when
6:42
Speaker 1: we index them back to twenty nineteen, So what's kind
6:45
Speaker 1: of what's the dynamic there and kind of what's changed
6:49
Speaker 1: since the early days of the pandemic.
6:52
Speaker 2: So you know, when we go back, obviously it makes
6:55
Speaker 2: total sense the breakfast would be hit, right, the need
6:57
Speaker 2: state for the consumer was different, right, And you know,
7:03
Speaker 2: I think that initial drop intuitively makes total sense. What
7:06
Speaker 2: makes made less sense to me when I look at
7:09
Speaker 2: the data is that we really started to see breakfast
7:12
Speaker 2: trending up in twenty twenty one, and maybe that's driven
7:14
Speaker 2: by the fact that brands were holding price on breakfast
7:18
Speaker 2: based on the fact that they were worried about guest counts.
7:21
Speaker 2: Then when we got into twenty twenty two, we saw
7:24
Speaker 2: that traffic was basically on parody where brands were back
7:28
Speaker 2: in twenty nineteen. Okay, it's twenty twenty three, right that
7:32
Speaker 2: we're seeing the traffic is down twenty percent relative, and
7:37
Speaker 2: I really think that's driven by a lot of the
7:39
Speaker 2: price changes. It makes sense to me that brands had
7:43
Speaker 2: to touch price. You can only move so far and
7:46
Speaker 2: get the necessary impact from breakfast. And I'm sorry, from
7:49
Speaker 2: lunch and dinner, So it was inevitable that breakfast would happen.
7:52
Speaker 2: And you know, in retrospect, one can make the argument
7:55
Speaker 2: maybe distributing price increases across more of the segments over
7:59
Speaker 2: time to ease that up, But I think it also
8:03
Speaker 2: makes sense that you wouldn't touch a segment when traffic
8:07
Speaker 2: is hurting. Yeah.
8:08
Speaker 1: Yeah, so you answered my next question, but that that's
8:12
Speaker 1: very interesting. So you're starting to see some pushback on price, right,
8:17
Speaker 1: and it's something that we've been writing about that that
8:20
Speaker 1: you know, it was inevitable that that customers wouldn't be
8:23
Speaker 1: able to continue to pay the prices that they were seeing.
8:27
Speaker 1: You know, do you have any data on on kind
8:30
Speaker 1: of what's the dynamic here in same source of sales
8:34
Speaker 1: like and in terms of that price pushback? You know,
8:37
Speaker 1: our customers, do you think they're going to continue to
8:41
Speaker 1: visit less you know, menu prices rolling off?
8:45
Speaker 2: What?
8:46
Speaker 1: What what does that mean for sales going forward? Are
8:48
Speaker 1: you seeing more check management? You know, any insight into
8:53
Speaker 1: those mew moving parts of same source sales?
8:57
Speaker 2: Sure? So a couple of things. If we stay on
9:01
Speaker 2: breakfast and we look at some of the survey work
9:05
Speaker 2: that's been done to understand intended visitation. Right, what we
9:11
Speaker 2: see is that the intended visitation for coffee and pastry
9:14
Speaker 2: going into twenty twenty four is at its highest relative
9:17
Speaker 2: to all the other segments. So even though we see
9:20
Speaker 2: breakfast sort of hurting right now, when we look at
9:23
Speaker 2: what customers want to do, right, that is the segment
9:26
Speaker 2: where they actually want to be. So I think it's
9:29
Speaker 2: an interesting data point. Right. On the one hand, we
9:31
Speaker 2: see the numbers, On the other hand, we look at
9:33
Speaker 2: how customers are potentially feeling. It doesn't exactly line up, right,
9:37
Speaker 2: So I don't feel like breakfast like hope is all
9:41
Speaker 2: is lost with breakfast? Right. I think some of the
9:43
Speaker 2: changes that we're seeing, unemployment holding low, right, all those
9:48
Speaker 2: factors are going to I think play into breakfast and
9:51
Speaker 2: hopefully a recovery there.
9:52
Speaker 1: Yeah, and telecommuting isn't that quite at the levels it
9:56
Speaker 1: was a few years ago. It's still exact, so that
9:59
Speaker 1: should help too. And your note you also talked about
10:02
Speaker 1: labor a little bit. Can you talk about how that's
10:05
Speaker 1: affecting QSR traffic?
10:07
Speaker 2: You know a couple things with labor, right, We're seeing
10:09
Speaker 2: that you know, obviously, unemployments at its lowest. Right, we're
10:14
Speaker 2: seeing that labor participation rates are almost at pre COVID levels, right.
10:20
Speaker 2: We know that, you know, when we look at who
10:23
Speaker 2: left the industry, you know, at least on the labor side,
10:27
Speaker 2: it's fifty five plus. The recovery is coming from twenty
10:30
Speaker 2: five to thirty four.
10:32
Speaker 3: Right.
10:32
Speaker 2: So profile of you know, the staffing, I think it
10:35
Speaker 2: has changed significantly since twenty nineteen. How does that going
10:39
Speaker 2: to play in? Well, you know, we've seen brands make
10:42
Speaker 2: significant investments in you know, technology, drive through speed of service.
10:48
Speaker 3: I think with this younger labor force, the focus.
10:52
Speaker 2: On operations is going to be really critical, right because
10:55
Speaker 2: at the end of the day, as prices are going up,
10:57
Speaker 2: and I was saying this before, how are we going
10:59
Speaker 2: to make this a better experience for the customer? Right?
11:02
Speaker 3: And that change in labor and that profile means that, you.
11:06
Speaker 2: Know, we've got a different a different set of experiences
11:09
Speaker 2: for the staff that are coming in that I think
11:11
Speaker 2: have to be addressed. Does that make sense?
11:13
Speaker 1: Yeah, of course, We're seeing a lot of companies move
11:15
Speaker 1: on that side. You know, Starbucks is probably the biggest one,
11:19
Speaker 1: but you know Chipotle as well, Like you know, happy
11:23
Speaker 1: employees in turn, you know, create happy guests, right, and
11:27
Speaker 1: so making their jobs easier is definitely a huge point
11:31
Speaker 1: of emphasis for the companies that we cover.
11:34
Speaker 2: And we've seen you know, we're seeing right now that
11:38
Speaker 2: you know, the the wage growth is basically in many
11:42
Speaker 2: cases outpacing the inflation that we're seeing right so net net,
11:47
Speaker 2: the sort of real disposable income for that, you know
11:52
Speaker 2: that labor force is actually positive right now, and that's
11:56
Speaker 2: that's I think really important as we're considering, you know,
11:59
Speaker 2: how we go into staffing in twenty twenty four.
12:02
Speaker 1: Yeah, and I didn't see anything in your note, so
12:04
Speaker 1: you may not have an answer to this question, but
12:06
Speaker 1: do you have any insight into staffing at late night?
12:09
Speaker 1: You know, we've pointed that out as an opportunity in
12:12
Speaker 1: twenty twenty three for some of our companies, Jack in
12:14
Speaker 1: the Box being the primary one, but also you know,
12:17
Speaker 1: Wendy's and McDonald's, these companies that were having real difficulties
12:19
Speaker 1: staffing at that day part last year, we saw maybe
12:23
Speaker 1: some room for improvement. And do you have any insight
12:25
Speaker 1: into that part of the day?
12:26
Speaker 2: Yeah, absolutely so. A lot of the research that we
12:29
Speaker 2: do when we're working with brands like you're mentioning is
12:33
Speaker 2: understanding what the right hours of operation are. Okay, the
12:37
Speaker 2: benefit of being a big brand is you can look
12:40
Speaker 2: and benchmark across you know, potentially thousands of stores to
12:44
Speaker 2: answer a really important question, which is should I be
12:47
Speaker 2: open an hour more, do I have the right amount
12:50
Speaker 2: of hours? Or should I be open less? Right? And
12:53
Speaker 2: so I think answering that question is really critical. And
12:56
Speaker 2: what we see in the industry is that typically across
12:58
Speaker 2: a brand, it's not uniform. Now, Jack maybe a little
13:01
Speaker 2: bit different with twenty four hours, but other brands, right
13:03
Speaker 2: and QSR, some are open to eleven, some are open
13:06
Speaker 2: to twelve, some are open to one. We're seeing a
13:09
Speaker 2: huge amount of opportunity dialing that in right, because that's
13:12
Speaker 2: going to be that game between labor, labor and sales.
13:16
Speaker 2: So these large brands should really be leveraging all of
13:19
Speaker 2: this experimental data that exists, right, restaurants being opened different
13:24
Speaker 2: times that can be used to really dial in, you know,
13:28
Speaker 2: the revenue against the labor that it takes.
13:32
Speaker 1: Great. Let's shift gears a little bit. Talk to me
13:35
Speaker 1: about strategic pricing. You know, how important is it right
13:39
Speaker 1: now to manage prices, price, product and promotions locally.
13:44
Speaker 2: Yeah, we've definitely seen a trend away from national price
13:51
Speaker 2: point promotions, and for very good reason. You know, when
13:55
Speaker 2: a brand runs something for five dollars, let's say some
13:58
Speaker 2: type of value associated with five dollars that hits Alabama
14:02
Speaker 2: completely differently than California, right. And I understand why brands
14:09
Speaker 2: want franchisees to be on those price points, right. I mean,
14:12
Speaker 2: that's a.
14:13
Speaker 3: Very powerful part of the marketing initiative.
14:15
Speaker 2: But I also understand franchisees that are saying, listen, these
14:18
Speaker 2: promotions really don't support our unit economics, and so I
14:23
Speaker 2: think this moved to a more promotional strategy that's driven
14:27
Speaker 2: let's say, at a market level. I think it's a really,
14:29
Speaker 2: really big opportunity for brands. I think the challenge is,
14:34
Speaker 2: how are you communicating to your guests? Right, if you're
14:36
Speaker 2: leveraging a loyalty program or you're leveraging a way to
14:39
Speaker 2: communicate directly with your guests. That to me is the
14:42
Speaker 2: huge opportunity in twenty twenty four. There's so much technology
14:46
Speaker 2: out there now that allows allows brands to say, mark
14:51
Speaker 2: this is the right promotion for you, right to come
14:54
Speaker 2: into the restaurant and from there, right, moving the needle
14:58
Speaker 2: to drive frequency for me or potentially the add ons
15:00
Speaker 2: and things like that. Yeah, that's where I think that
15:03
Speaker 2: the game is going to be, you know, going forward.
15:07
Speaker 1: Yeah, so how has that impacted your pricing models over
15:10
Speaker 1: the last few years?
15:12
Speaker 2: So as we think about our how our models have evolved,
15:17
Speaker 2: you know, over the last couple of years, one of
15:18
Speaker 2: the things that we've had to do is add a
15:20
Speaker 2: lot more variables into the model or our models in
15:24
Speaker 2: order to isolate what is actually price versus what is
15:29
Speaker 2: all the other stuff that's taking place. Right, So that's
15:32
Speaker 2: that's been a big change for us, and it's actually
15:35
Speaker 2: really forcing us to evolve our models much more quickly
15:38
Speaker 2: than we did let's say ten years ago, right, you know,
15:42
Speaker 2: I'd say the second thing is, as we're looking at
15:44
Speaker 2: pricing models, we really have to account for competition now, right,
15:48
Speaker 2: And it's very easy for brands to say, oh, I'm
15:52
Speaker 2: going to compare this item to that item. Right. What
15:54
Speaker 2: I'm most interested in when I'm looking at competition is
15:57
Speaker 2: really total basket associated with with what the customer is spending. So,
16:04
Speaker 2: you know, what we worry about is that we touch
16:08
Speaker 2: too many products that one customer buys and none of
16:12
Speaker 2: the products that other customers are buying, right, And finding
16:16
Speaker 2: that distribution is really critical, and that's why you have
16:19
Speaker 2: to go down to the basket level to understand it.
16:21
Speaker 2: But it can also be why we see price changes
16:25
Speaker 2: in lunch and then not price changes at dinner. Right.
16:28
Speaker 2: There's there's a lot of different interplay we can be
16:31
Speaker 2: looking at. Do customers who shop at shop for lunch
16:35
Speaker 2: go to dinner or not. In some brands, we see
16:37
Speaker 2: it's their their their lunch customers and dinner customers, and
16:41
Speaker 2: that allows us to take two very different pricing strategies.
16:44
Speaker 2: In many cases they really overlap, and that makes it
16:47
Speaker 2: more challenging to account for making sure that you don't
16:51
Speaker 2: have some customers that are being hit really hard. The
16:53
Speaker 2: simple example, right, is if you touch a burger and
16:55
Speaker 2: a fry, and a and a and a beverage at
16:57
Speaker 2: the same time, right, versus touching a burger, a chicken sandwich,
17:02
Speaker 2: and you know, some kind of vegetarian item. Right. It's
17:05
Speaker 2: a simplistic example, but it adds up. Right, when you
17:08
Speaker 2: put five percent into the system, it could be that
17:10
Speaker 2: some customers are expiring twenty percent. Right, So understanding the
17:14
Speaker 2: makeup of the checks has really become important. I'd say.
17:18
Speaker 2: The last thing is that pricing has to support the
17:22
Speaker 2: initiatives of the brand. Okay, that's going to be marketing initiatives.
17:26
Speaker 2: So when we're recommending a price change, we have to
17:29
Speaker 2: know what's happening in three months, six months, twelve months, right,
17:32
Speaker 2: And does the cadence of the price change support the
17:35
Speaker 2: initiatives that are going into place? I think that's really
17:39
Speaker 2: really critical. Same thing with operations. One of the things
17:41
Speaker 2: that we've been hearing as brands are looking at speed
17:44
Speaker 2: of service is that there are certain items that we
17:47
Speaker 2: actually don't want to promote. Right. There are items sometimes
17:51
Speaker 2: where we say, oh, we could lower price on this
17:54
Speaker 2: and drive higher margins or something, and the answer is no,
17:57
Speaker 2: we can't sell more of that.
17:58
Speaker 3: It slows down, the slows down the drive through.
18:01
Speaker 2: Right. So all of these factors I think need to
18:04
Speaker 2: come into play as you consider a strategy for six months,
18:08
Speaker 2: twelve months, eighteen months.
18:11
Speaker 1: Okay. Cole and we touched on this a little bit
18:13
Speaker 1: about you know, kind of customers pushing back on the
18:16
Speaker 1: breakfast price increases this year. But you know, I guess
18:21
Speaker 1: my question is on an overall level. Are we starting
18:24
Speaker 1: to see more pushback, you know, on the price increases?
18:28
Speaker 1: Is that part of why we're seeing you know, results
18:32
Speaker 1: kind of slow here in August and September?
18:36
Speaker 2: Yeah, I think so. I mean with the numbers that
18:40
Speaker 2: are being posted right there, I think we all expect
18:44
Speaker 2: some kind of threshold is being hit, right, or is
18:48
Speaker 2: going to be hit. The interesting thing is that brands
18:51
Speaker 2: are going to have to take more price next year.
18:54
Speaker 2: Right when we look at let's say the producer price index, right,
18:56
Speaker 2: there's no indication that the cost of goods sold they're
18:59
Speaker 2: going to go down, right. We know that wage increases
19:01
Speaker 2: are going to be taking place. So how do restaurants
19:04
Speaker 2: deal with that? From my perspective, it really comes down
19:08
Speaker 2: to running a great restaurant, right. We sort of lose
19:11
Speaker 2: that sort of sight as we think of you know,
19:14
Speaker 2: QSR sometimes. But the truth is a great run restaurant
19:18
Speaker 2: where you increase the value of the experience of the customer,
19:21
Speaker 2: will give brands the runway to take price. Now what
19:25
Speaker 2: could that be. It could be getting more people through
19:27
Speaker 2: the drive through. It could be changing the packaging, right,
19:30
Speaker 2: it could be changing the menu board. There's so many
19:33
Speaker 2: different ways that brands can buy themselves the opportunity for price.
19:37
Speaker 2: Where we've seen brands fail is when they say, you
19:40
Speaker 2: know what, I want to change segments, So I'm going
19:43
Speaker 2: to raise my prices twenty percent, but I'm not going
19:45
Speaker 2: to prove anything for the customer.
19:47
Speaker 3: Right those brands, it doesn't stick.
19:50
Speaker 2: It's the same reason why we would say if a brand,
19:53
Speaker 2: if they renovated a restaurant, that is the time to
19:56
Speaker 2: take price. Right, You've changed the value for the customer,
20:00
Speaker 2: changed the experience, and bought yourself. That opportunity sense.
20:05
Speaker 1: Yeah, it does. It's and it's really interesting. But you know,
20:08
Speaker 1: our contention is that we could be on the early
20:10
Speaker 1: stages of a commodity bull market, and historically those last
20:14
Speaker 1: seventeen years. Man, so you might be busy for the
20:17
Speaker 1: next decade or so.
20:20
Speaker 3: Well.
20:20
Speaker 2: You know, it's funny because a lot of the recommendations
20:23
Speaker 2: that we make are really around Listen, you've gone far
20:27
Speaker 2: enough on this. So either we have to re engineer
20:30
Speaker 2: a product, or we have to change the packaging. Something
20:33
Speaker 2: has to change because customers are not going to give
20:35
Speaker 2: you credit anymore for this level of price for this
20:39
Speaker 2: specific product. So yeah, it's going to be a game changer,
20:42
Speaker 2: I think.
20:43
Speaker 1: Yeah, and it's going to be interesting the next twelve months. Right,
20:46
Speaker 1: most of my companies are talking about letting a lot
20:48
Speaker 1: of price roll off.
20:49
Speaker 2: You know.
20:49
Speaker 1: I guess to your point you made at the top
20:51
Speaker 1: about kind of taking away and see approach, right, Like
20:53
Speaker 1: the gap between inflation in the restaurant versus a grocery store,
20:59
Speaker 1: you know, has really wide in this year, and so yeah,
21:02
Speaker 1: so uh, you know the price is going to roll
21:05
Speaker 1: off this year. But with commodity prices, you know, oil
21:08
Speaker 1: at hitting ninety five dollars, commodity prices continuing to go up. Yeah,
21:13
Speaker 1: to your point, you know, next year might be a
21:14
Speaker 1: year to raise prices. But you know, what I've learned
21:18
Speaker 1: in this business is that the top line is where
21:23
Speaker 1: you probably gain your most margin expansion, Right, It's really
21:26
Speaker 1: about just getting more customers through the door and increasing
21:29
Speaker 1: your sales. Right. So if sale, if they can't can't
21:33
Speaker 1: figure out a way to at least keep traffic flat
21:36
Speaker 1: and boost the same store sales, it's gonna be tough
21:39
Speaker 1: to to cover these higher costs.
21:43
Speaker 2: Well, you know, I honestly I think we're talking about
21:47
Speaker 2: isn't growing traffic as we're talking about stealing share. Okay,
21:51
Speaker 2: this is this is a year of stealing share because
21:54
Speaker 2: you know, we're not necessarily gonna I don't think that
21:57
Speaker 2: the restaurant industry is going to drive higher frequently see
22:00
Speaker 2: right as a whole. Sure, some brands can be successful
22:03
Speaker 2: to drive frequency and drive spread, but I think at
22:06
Speaker 2: you know, at a high level, what brands are going
22:08
Speaker 2: to be focused on is stealing share now in terms
22:12
Speaker 2: of price for next year. I think, you know, brands
22:16
Speaker 2: obviously need to be cautious. They need to be looking
22:18
Speaker 2: at what everyone's doing. They need to be looking at
22:20
Speaker 2: what the environment is. But what they should not be
22:23
Speaker 2: doing is putting the brakes on price. Okay, we've seen,
22:28
Speaker 2: you know, for many years one of the biggest mistakes
22:30
Speaker 2: that brands make is they go, Okay, it's twenty twenty four,
22:33
Speaker 2: we're not going to take any price, right, Q three
22:36
Speaker 2: rolls around or something like that, right, And the thought
22:40
Speaker 2: is we're going to make it up, and your customers
22:42
Speaker 2: aren't giving you any credit for that. They don't remember
22:44
Speaker 2: that you haven't taken price for nine months, right, And
22:47
Speaker 2: so that slow and steady approach and coming up with
22:50
Speaker 2: the right cadence in the context of the promotions and
22:53
Speaker 2: the menu development strategy super critical next year because there's
22:58
Speaker 2: no catch up on price. Yeah. And you've mention losing guests.
23:01
Speaker 1: Yeah, for sure. And you mentioned that that QSR customers
23:05
Speaker 1: have been more accepting on the price increases than full service.
23:07
Speaker 1: I mean it makes sense that the checks are lower
23:10
Speaker 1: and is part of that the qsr's ability to attract
23:15
Speaker 1: more higher high income consumers since the start of the pandemic.
23:19
Speaker 2: Yeah, I think that's fair.
23:21
Speaker 3: And we've seen a lot of We've seen a lot of.
23:25
Speaker 2: Things over the years about the assumptions associated with high
23:28
Speaker 2: income owners. Right. One of the assumptions is, you know,
23:32
Speaker 2: we'll often hear is, oh, my high income customers are
23:36
Speaker 2: not sensitive and my low incocome customers are price sensitive. Right,
23:40
Speaker 2: And it can actually be the exact opposite. Right. If
23:43
Speaker 2: you're a low income customer and you want to go
23:45
Speaker 2: out and eat, it's possible the QSR is your only option. Right.
23:49
Speaker 2: But if you're a casual dining customer or you're a
23:52
Speaker 2: higher income customer and you go, holy cow, I just
23:55
Speaker 2: spent twenty five dollars for two people at a QSR restaurant,
23:59
Speaker 2: I might I just will go to casual dining. They
24:01
Speaker 2: have the purchasing power to do that, right, And so
24:05
Speaker 2: that's why, you know, I'm really interested to see what's
24:08
Speaker 2: gonna happen with casual dining because I think, I think
24:12
Speaker 2: as these prices go up, I think they can steal
24:16
Speaker 2: some share from QSR, at least with the right customers.
24:21
Speaker 1: Yeah, and so I guess on the on the opposite
24:24
Speaker 1: side of the spectrum, you know, we're starting to see
24:26
Speaker 1: more discounts. You know, to your point, nobody wants to
24:30
Speaker 1: be the first, first one out there doing it, but
24:33
Speaker 1: we're starting to see more discounts. Is that going to
24:35
Speaker 1: be an increasingly large part of the strategy to steal
24:40
Speaker 1: share over the next twelve to eighteen months.
24:43
Speaker 2: Yeah, I can tell you that, even though you're we're
24:46
Speaker 2: not sort of seeing that first mover yet, I can
24:49
Speaker 2: tell you that people are testing. Okay, So I think
24:52
Speaker 2: the expectation is that there's going to be a value play, right,
24:57
Speaker 2: and I think brands understand that and they're to be
25:00
Speaker 2: ready for that. You know. My thought, you know, is
25:04
Speaker 2: that we use the word value in a very broad way, right,
25:08
Speaker 2: and I think we really need to talk about price value,
25:11
Speaker 2: and we need to talk about abundant value, right, and
25:13
Speaker 2: price value I think hits a certain customer type. I
25:17
Speaker 2: think abundant value hits another customer type. And what brands
25:21
Speaker 2: need to do is find the balance between those two.
25:24
Speaker 2: And some brands may need to do only one of
25:26
Speaker 2: those and other brands do need to have something to
25:31
Speaker 2: address both segments. Yeah, that makes sense. I mean, at
25:35
Speaker 2: the end of the day, we've seen brands put out
25:39
Speaker 2: you know, five six, seven dollars promotions, right with the
25:43
Speaker 2: thought that, oh, now I'm going to trade up someone
25:46
Speaker 2: who's coming in spending two three four dollars, And the
25:48
Speaker 2: answer is no, No, that customer comes in and is
25:51
Speaker 2: going to spend that amount of money. The idea that
25:53
Speaker 2: you would move them or change customer behavior that significantly,
25:58
Speaker 2: I think is unrealistic.
26:00
Speaker 1: Yeah, especially with gasoline approaching four dollars again, right, that
26:03
Speaker 1: customer is on a very tight budget.
26:05
Speaker 2: Exactly.
26:06
Speaker 1: We've seen an interesting shift in consumer spending. You know,
26:09
Speaker 1: it looks like high income consumers are now pulling back
26:13
Speaker 1: a bit this year. Fine dining seam Star sales have
26:16
Speaker 1: been down for six months straight. And you know, I'm
26:19
Speaker 1: aware that that's also B to B spending in there,
26:23
Speaker 1: but also, high end retail sales have started to slow.
26:28
Speaker 1: You know, what can QSR chains do to continue to
26:32
Speaker 1: capitalize on a trade down from those customers?
26:36
Speaker 2: So I guess one point i'd make is that I
26:39
Speaker 2: don't know that the data of fine dining sort of
26:44
Speaker 2: losing out is very consistent because on our side, when
26:48
Speaker 2: I look at some of the clients that we're working with,
26:50
Speaker 2: I don't think we're seeing that exact statement, right, So
26:53
Speaker 2: I think that there's I think there's some differences across
26:58
Speaker 2: the industry that are at play. Yeah, I mean, I
27:04
Speaker 2: think it really comes down to understanding the need state
27:07
Speaker 2: of that customer. Right, what are they what are they
27:10
Speaker 2: solving for when they go to qs R versus casual dining?
27:14
Speaker 3: Is it purely that it's convenience driven.
27:17
Speaker 2: Or are there other factors? Because if it's not convenience driven,
27:20
Speaker 2: if it's maybe experience driven or product driven, or you know,
27:25
Speaker 2: any other factor. Until we really understand that, I don't
27:29
Speaker 2: know that that a brand is going to be able
27:32
Speaker 2: to attract that customer. Now, if you talk about a
27:35
Speaker 2: fast casual customer versus QSR, I think that's where the
27:38
Speaker 2: game is going to be, right, You know, how can
27:40
Speaker 2: you steal steal share there. I mean if you go
27:44
Speaker 2: to if you go to a QSR brand and say,
27:47
Speaker 2: oh wow, this is expensive, and then you go to
27:49
Speaker 2: you know, Fast casual and go this is expensive. You know,
27:52
Speaker 2: what I see on the Fast casual side is a
27:54
Speaker 2: lot more managing of portions than I do on the
27:56
Speaker 2: QSR stade right again, and that plays into value. Right,
28:00
Speaker 2: So if it's abundant value that I'm going to get
28:02
Speaker 2: from QSR that I no longer get from Fast Casual,
28:06
Speaker 2: right because they're using thirty percent less protein, the plate
28:10
Speaker 2: got smaller, right, I think that's going to be where
28:14
Speaker 2: QSR can lean into.
28:17
Speaker 1: Yeah, it's interesting you say that. I made a comment
28:19
Speaker 1: to my son the other day. When he orders Chipotle
28:24
Speaker 1: and we pick it up or have it delivered as
28:26
Speaker 1: burrito is a lot smaller than when he actually goes
28:29
Speaker 1: to the store and has it made in front of.
28:32
Speaker 2: Oh that's interesting. Yeah, that's super interesting.
28:36
Speaker 1: Yeah, all right, let's get let's get into dynamic pricing
28:40
Speaker 1: a little bit. Obviously that's a hot topic. I just
28:44
Speaker 1: read an article that there was some pushback in a
28:46
Speaker 1: UK pub that raised the price of their pints by
28:50
Speaker 1: a euro during busy times. So is dynamic pricing and
28:55
Speaker 1: inevitability in the restaurant industry, and how can restaurants do
28:59
Speaker 1: it without pissing off their customers?
29:03
Speaker 2: So I guess I have strong opinions on this subject,
29:06
Speaker 2: and that is that I in no way think this
29:08
Speaker 2: is inevitable, and we've seen a lot of cases of
29:11
Speaker 2: why that's not going to happen. To me, it's driven
29:15
Speaker 2: by the idea that hoping that you can retrain the
29:20
Speaker 2: customer in an existing restaurant is a stretch, right, and
29:25
Speaker 2: we've seen a lot of example. You just gave an
29:27
Speaker 2: example about that. Look in New York when we try
29:30
Speaker 2: to build tipping into the prices, right, this is going
29:33
Speaker 2: to be the new prices pushback. I just don't think
29:38
Speaker 2: for an existing brand that they're going to be able
29:40
Speaker 2: to do it. The opportunity is going to be for
29:43
Speaker 2: the new brands that come in start with dynamic pricing
29:47
Speaker 2: and make that a part of the entire experience. Okay, now,
29:53
Speaker 2: let's say you have to do dynamic pricing. There's only
29:57
Speaker 2: one model in my mind, and that is full price
30:01
Speaker 2: and discounting. Full price and discounting. In the absence of
30:05
Speaker 2: that approach, I think brands are they're just going to
30:08
Speaker 2: piss off their customers. Okay, Now if you're.
30:10
Speaker 3: If you want me to look for where I think.
30:12
Speaker 2: The opportunities are, Okay, If I had to do dynamic pricing, right,
30:17
Speaker 2: I would really look at, let's say, delivery charges. Okay,
30:21
Speaker 2: So I wouldn't necessarily have significant difference in prices of food, right,
30:26
Speaker 2: or I wouldn't dynamically change those, but I would change
30:29
Speaker 2: the delivery price. Why because the customer has been trained
30:32
Speaker 2: that surge is associated with the movement, right, It's not
30:37
Speaker 2: associated with the product. It's apposiated with me going from
30:40
Speaker 2: here to there or my burger coming from there to me.
30:43
Speaker 1: Right.
30:43
Speaker 2: So that would be the place I would want to
30:46
Speaker 2: play in, is the delivery price. But in terms of
30:49
Speaker 2: the actual price, Hey, it's busy now, so you're gonna
30:52
Speaker 2: pay more. Yeah, that might work in restaurant and hotels.
30:56
Speaker 2: I just don't think we're there.
30:59
Speaker 1: Yeah, I I trust your opinion. It's it's interesting when
31:03
Speaker 1: I talk to pricing experts like yourself. You know, that's
31:09
Speaker 1: that's the answer I tend to get, you know, but
31:12
Speaker 1: there's there's a lot of people really trying to push
31:15
Speaker 1: this forward. But you know, Yeah, I agree to your point.
31:18
Speaker 1: I think it's going to be very difficult to retrain customers.
31:21
Speaker 2: Yeah, and that's why the best ways with a new concept, right,
31:24
Speaker 2: a new concept that leverages that and makes it a
31:28
Speaker 2: positive for the customer right right now, it's really I
31:32
Speaker 2: see it as a negative to the customer. Right if
31:34
Speaker 2: you told me, Hey, this restaurant that I really want
31:37
Speaker 2: to go to, it cost me fifty dollars to make
31:39
Speaker 2: a reservation. Okay, that I can kind of buy that, right,
31:42
Speaker 2: But just the idea that they're busy, so it costs
31:44
Speaker 2: me more. It's just a hard pill to swallow. And
31:47
Speaker 2: when you say it out loud, it gets to be
31:48
Speaker 2: even harder to swallow. For sure, what I'm saying, like
31:51
Speaker 2: on paper, it makes a lot of sense. Sure the
31:53
Speaker 2: numbers look great for sure. Man.
31:56
Speaker 1: Well listen, man, that was fun. It was great catching
31:59
Speaker 1: up up. Where can the audience go to find out
32:02
Speaker 1: more about RMS?
32:04
Speaker 2: Yeah, so if you go to www. Dot revenuemanage dot com. Okay,
32:09
Speaker 2: you find everything about us, our approach to pricing, our
32:12
Speaker 2: approach to managing profitability, and understanding financials. It's all it's
32:17
Speaker 2: all there.
32:19
Speaker 1: Yeah, good stuff. You work with a great team over there. Yeah.
32:24
Speaker 1: Thanks again, big thanks to the audience for tuning in.
32:26
Speaker 1: If you liked the episode, please subscribe and leave a review.
32:29
Speaker 1: Check back in a couple of weeks for a discussion
32:32
Speaker 1: with Justin Rosenberg, the founder and CEO of Honey Grow