It certainly appears that the fast-casual sector is getting some sort of message from consumers that prices are too high.
During a visit to Alexandria, Virginia, this week, we spotted a pair of sidewalk signs outside of fast-casual chains. There was one outside of Five Guys, offering a combo Little Burger, Little Fry and drink for $13.99.
Next door, an &pizza was pushing a lunch special with a half a pizza, a side salad and a drink for $10.
These are just two restaurants, in a market where discounts are probably important right now. And both chains have dealt with sales or traffic challenges going into this year.
But it also demonstrates a current reality: The fast-casual sector, which not all that long ago appeared untouchable, is clearly being affected by the state of the consumer at the moment.
Nowhere is this demonstrated more effectively than at Chipotle, which has spent the year defending its business as its same-store sales stumbled unexpectedly starting earlier this year.
As my colleague Lisa Jennings reported, the company is expanding its annual “Boorito” promotion around Halloween to last the bulk of October. This followed the release of its large-order discount “Groupotle.”
The current economic climate has put a lot of pressure on industry executives, which we’ve covered ad nauseam. Restaurant chains are creating more new menu items, they’re getting more aggressive with marketing, and they’re pushing discounts pretty much everywhere.
Nearly 30% of industry traffic is on a deal at the moment, according to Circana. Chains have spent the past year-plus offering a wider array of deals. Chili’s comeback was fueled in part by the way it promoted its discounts. McDonald’s just upped the ante by lowering prices on its combo meals.
The discounts don’t stop there, either. On my podcast today with Technomic’s Rich Shank, we discussed the growing breadth of value offers. Chains are pushing discounts on their loyalty apps. They’re pushing discounts on aggregator sites. A few are sending out coupons. We have new value meals, limited-time offers, bundled deals and other broad-based discounts. And a huge percentage of brands are offering them, including full-service and fast-food chains.
Consumers almost have to try to avoid some kind of discount marketing.
But the consumer shift to value appears to have taken much of the fast-casual space by surprise. Earlier this year, for instance, Jennings noted that Noodles & Company was taken aback by the shift in consumer toward value and affordability. It is now pushing more value offers.
Chipotle’s challenges this year suggest the company didn’t expect the sales decline it had and its response indicates value is a key issue. It shouldn’t be, but it apparently is.
Fast-casual chains historically didn’t need to push value that heavily and the biggest of them have been able to avoid the sort of price wars that more traditional quick-service brands have fought over the years. They generated strong same-store sales last year, at a time when there was all this pushback on fast-food brands. And they’ve often grown right through difficulties such as the Great Recession and subsequent price wars.
That many of them are now pushing more discounts is indicative of the extent of the shift in consumer sentiment toward value, at least when it comes to restaurants. Unless something takes place to shift that sentiment, expect that value focus to only deepen.