Restaurant menu prices will remain high in 2017, but discounts will abound

Although restaurant chains have been pushed back for raising menu prices in 2016, they are unlikely to give in and lower them this year as their costs go up, especially for rent and labor. But promotions and offers on meals may be more prevalent.

Sorry, diners: although restaurant chains were pushed back for raising menu prices in 2016, they are not expected to give in and lower them this year.

But there is a silver lining. Specials and deals on meals may be more prevalent, meaning eagle-eyed diners can still get a bargain if they can find it.

The restaurant industry largely kept prices stable after the recession, in a desire to support sales while customers remained nervous. Over the past year, many raised prices as they expected an improvement in the economy to give consumers more income available to eat out.

But Americans weren’t as confident as restaurants hoped. Consumers are bogged down by rising health care costs, student debt, and other costs, and they also have cheaper alternatives like ready-made meals at the grocery store and home kits.

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“You don’t have to go to a restaurant to get a meal prepared,” said Bonnie Riggs, analyst at research and consulting firm NPD. “You can order delivery, use a meal kit, get a roast chicken at the grocery store. … We have so many options available to us now.

These alternatives are growing in number and popularity, in part because restaurant rivals, such as grocery stores, pass cheaper food prices onto their customers. Restaurants, on the other hand, are largely digging their heels. This has created the biggest price gap between food eaten at home and food eaten out in decades, according to government data.

“People are in shock with the stickers,” Riggs said. “It’s not that they don’t want to eat out, it’s that they can’t afford to eat out that often.”

Some restaurant companies have said in their quarterly conference calls this fall that they are taking a “wait and see” approach to menu pricing in 2017. Among the restaurants that have come up with a specific plan to increase the prices of menus was Brinker International, which operates Chili’s and that of Maggiano.

The company said it plans to continue with price increases of between 1.5 and 2 percent, offset by discounts on food and alcohol. Buffalo Wild Wings said it expects “minimal” price increases in 2017 after increasing prices by about 3.4% at company-owned restaurants over 12 months.

Fast food chains, which have more price-sensitive customers, are adjusting their product offerings to increase customer spending without raising prices. McDonald’s, for example, added more expensive “homemade” sandwiches. It is also pushing its McPick 2 menu, which allows McDonald’s to make an offer to customers but also requires customers to buy two items. The hamburger chain’s old Dollar menu required a single item purchase.

Restaurant visits stagnated in the first half of 2016 and declined in the third quarter, according to NPD. Visits to fast food chains, which account for the majority of overall restaurant visits in the United States, fell for the first time in five years.

This adds to the concerns of some analysts that the restaurant industry will enter a recession.

“The restaurant industry will continue to limp as eating out becomes more expensive and alternatives continue to develop,” Riggs said.

She expects restaurant growth to remain relatively stable this year, with declines in already tight segments like casual dining, which includes chains like Chili’s and TGI Friday’s.

So why don’t restaurants just lower the prices? Their costs are increasing, especially for rent and labor. Labor costs in particular, due to the hike in the minimum wage, will outweigh the benefits of sustained cheap food prices, Moody’s analyst William Fahy said.

“Labor costs will continue to rise, so when wages rise, you don’t get a break with the commodity prices falling,” he said.

And as wages rise in a number of major cities, some companies are using other means to curb turnover, such as tuition assistance plans, to save on the high costs of training new employees. Fahy said turnover in the industry consistently exceeds 100%, which means that a restaurant would have to replace all of its staff and fill certain positions more than once, in a year. .

Fahy said sales had “declined significantly” recently. And by offering more programs and benefits to their employees, restaurants can keep their best employees longer.

“Everyone is trying to have a better employee,” said Fahy.

As competition intensifies from new and expanding old chains, and efforts to keep menu prices higher intensify, promotions are expected to intensify, he said.

Restaurants are hoping that an increase in promotions will attract more customers who had chosen to cook more meals at home. A key goal is to keep existing customers coming back more often.

“The restaurant industry is only going to grow through repeat visits, and we are seeing these heavy users getting fewer visits,” Riggs said.

While restaurants traditionally send promotions by mail, email and more recently on social media, others are offered on smartphone apps to attract customers to their new technology. Many quick service restaurant chains, from McDonald’s to Dunkin ‘Donuts, have special promotions for customers who download their app.

The promotions will keep the collective head of restaurants above water, Riggs said, but she still believes the pace of restaurant closings may continue as foot traffic remains at a standstill. Some major restaurant chains closed stores or filed for bankruptcy last year, including Old Country Buffet, Ruby Tuesday, Cosi and Logan’s Roadhouse.

“We have more restaurants than we have bodies to fill them with,” Riggs said.

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