Price Elasticity and the Resurgence of QSRs in the Food Service Industry

Leveraging data from Drop’s 2023 Q1 Spending Report and a recent card-linked member survey, we have been able to uncover some interesting consumer insights into where diners are purchasing their food and the importance of price. Overall 2023 consumer spending is down and fast to moderate-speed restaurants look to be the preferred choice, but price increases or the appropriate discount could be enough to sway consumer behavior. 

Total spend in Grocery stores and Restaurants decreased compared to last year, but QSR restaurants look to be the prevailing popular choice.

Total spend at Grocery stores and Restaurants decreased 7% and 3% respectively compared to last year. The spend decrease was primarily due to fewer transactions for both, but the basket size at Restaurants increased slightly (+1%) whereas Grocery decreased slightly (-2%). The marginal price increases at most restaurants are likely creating a weaker drop-off in total spend. Top restaurants among Drop members in early 2023 are fast to moderate-speed restaurants rather than sit-down venues. As we approach a potential recession, QSR restaurants will likely become a popular choice again as we saw with the Great Recession.

Bar graph displaying Restaurant Sector Total Spend Share (Top 5). The data was collected by Drop's card-linked marketing platform.

Comparing all industries, Food Delivery is the most sensitive to price increases and Grocery is the least.

For Food Delivery 40% of survey respondents would be willing to pay a <5% (lowest answer option) price increase before being deterred from purchasing, whereas for the majority of other industries, consumers are willing to pay a 5-9% increase. Grocery is the industry where respondents are least sensitive to price increases, 62% are willing to pay a 10%+ increase which is significantly higher than any other industry. Groceries are a product that consumers cannot go without and therefore are willing to pay significant price increases if required. Food Delivery is not a necessity and is already at a fairly expensive price point, so marginal increases are enough to sway consumers into changing their shopping habits.

Maximum Price Increase Before Deterred to Purchase Vertical Stacked Column Graph. The data was collected by Drop's card-linked marketing platform.

With spending habits decreasing in 2023, low-price discounts are enough to entice consumers to purchase from a brand. 

For every industry except Technology, most respondents (on average 36%) would be enticed by a 10-19% price decrease (lowest answer option). The lower discounts were more prominent for Grocery, Toiletry, Restaurant, and Personal Care brands (an average 40% of respondents). For Food Delivery, Entertainment, Travel, Clothing, and Technology, a 10-19% discount was still the most popular (an average 32% of respondents) but a higher share of respondents would also require a greater discount at 30%+ (average 37% of respondents). 

Minimum Price Decrease Before Enticed to Purchase Vertical Stacked Column Graph.

Companies in the Food Delivery industry look to have a challenge on their hands as consumers can only endure low price increases and require the highest discounts. For Grocery, on the other hand, consumers are willing to endure higher price increases and require low enticing discounts. This creates a perfect opportunity to leverage customer loyalty programs, consumers preferring to eat at home, and couponing which are popular approaches to combat the rising living costs.

In an industry where price sensitivity varies across consumer behaviors, our card-linked marketing solutions enable you to entice customers effectively. With Drop’s Card Linked Offers, you will be better equipped to combat the challenges faced by the Food Delivery industry while capitalizing on the enduring demand for Grocery products. 

Ready to seize the opportunity and maximize your business’s potential in the food service industry? Discover how Drop’s Card Linked Offers can help you navigate the dynamics of price elasticity and consumer preferences.

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    How QSRs Can Adapt to Survive a Recession

    The Great Recession posed challenges for many industries including Quick-Serve Restaurants (QSRs) as consumer confidence and spending declined. However, some QSR chains were able to survive and even thrive by adapting to changing market conditions.

    How did QSRs survive the Great Recession?

    QSR chains like McDonald’s and Chipotle adapted to the changing market conditions to survive the economic downturn. McDonald’s saw an increase in sales due to its affordable menu options and value promotions. Meanwhile, Chipotle’s focus on healthy and fresh food options helped them to fare relatively well.

    McDonald’s + Chipotle Image

    The QSR industry was not immune to the Great Recession, but restaurants that could innovate efficiently were better equipped to survive and even thrive during this period.

    Consumer insights from Drop transactional data.

    Drop Transactional Data from 2022 and early 2023 reveals that QSR spend has been relatively consistent but started to decline in early 2023, similar to the Great Recession. Fast Casual spend follows a similar trend but being at a higher price point also experienced an earlier drop off in June of 2022. These trends are no surprise as economists are predicting Q1 of 2023 as potentially the beginning of another recession.

    QSR Industry Spend April 2022 - February 2023
    The Index approach uses the spend of base month (April, 2022) as the benchmark to showcase the changes of spend from each following month in comparison to the base month. This illustrates the trend in a simplistic manner, and enables the comparison of different categories under the same scale. For example, index 1.00 means the spend of a certain month is the same as the spend from April, 2022 and 2.00 means the spend of the certain month doubled the spend from April, 2022. 
    Fast Food: McDonalds, Chick-fil-A, Taco Bell, Wendy’s, Subway, KFC, Popeyes, Burger King. 
    Fast Casual: Chipotle, Five Guys, Qdoba, Panera Bread.

    Despite seeing a decrease in overall QSR spend, the average basket size has been consistent and even increased by approximately $1 for Fast Food restaurants. The marginal increase can be attributed to inflation and brands increasing their prices in the past 6 months. 

    The average frequency of purchases for Fast Food has also remained stable, except for a subtle dip in early 2023. This could be attributed to New Year’s resolutions to reduce fast food consumption. For example, the Fast Casual category continues to be very stable as brands like Chipotle are positioned as a healthier option.

    QSR Average Basket Size April 2022 - February 2023
    QSR Average Purchase Frequency April 2022 - February 2023

    What did we learn from our members about the future of the QSR space?

    Drop surveyed 1,300 card-linked members and found that 69% said they will spend the same amount on fast food in the next six months. However, 10% of respondents plan to spend more or much more because they are too busy to prepare food at home (40%), it’s convenient (40%) and it tastes good (29%). If QSRs introduce similar initiatives that were leveraged during the Great Recession like value meals, 28% (+18%) of respondents would purchase more fast food.

    QSR Purchase Frequency in the Next 6 Months

    Despite QSR basket size remaining steady, the decrease in the frequency of purchases is resulting in a decline for overall spend so far in 2023. From the Drop card-linked survey, around 80% of respondents will spend the same amount or more in the coming months on fast food. 

    If QSR brands want to capitalize on this sentiment and increase their share of wallet, they should look to the lessons from McDonald’s and Chipotle during the Great Recession. Similar to what was done in 2008-2009, QSRs should prioritize cheap and easy value items, emphasize the savings from coupons only found by downloading the brand’s respective app, and build on loyalty within the industry to maximize profits.

    The benefits of Drop card-linked offer programs for QSRs.

    With Drop’s Card-Linked Offers solution, QSR brands can offer personalized discounts and rewards to customers based on their spending behavior, leading to increased engagement and higher revenue. By adopting a card-linked offer program, QSRs can benefit from increased customer retention, improved consumer insights, and a competitive advantage in the market.

    Ready to maximize profits for your QSR brand? Start driving more sales and building customer loyalty today with Drop’s Card-Linked Offers solution.