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How Inflation Cooling and Spending Rising Impact Restaurant Franchises
Concepts must be strategic as the industry sees a small ease in economic pressure.
A recent report from LinkedIn News shows that inflation softened and consumer spending rose slightly in October. The annual interest rate lowered from 6.3% to 6%, and Americans spent about .8% more than in September.
“Inflation is still far too high, but the data is the latest to offer a little hope that decades-high inflation is cooling,” wrote Courtenay Brown, a reporter at Axios.
That “little hope” is something that restaurant concepts, 90% of which have had to raise prices to deal with inflation’s effects, can hold on to and plan accordingly for. While the overall economic outlook is still dismal, signs point to things improving.
The increase in personal spending is aligned with a .7% increase in personal income and a 0.5% increase in wages and salaries for the month. Inflation has greatly impacted disposable income, with salaries unable to keep up, but this shows a step in the right direction.
“Working families have more money in their family budgets, minus a small bite from inflation, and they feel they can spend more. Any month in which increases in personal incomes and disposable incomes exceed any increase in the price index is a good month for working families,” explained Seth Harris, professor of law and policy and leader of the Initiative on Labor & Economic Justice.
With more money to spend and price hikes on a downward trend, there is a positive outlook for the restaurant and food service sector. But brands still need to be cautious about unit economics until things are more “in the clear.” While Americans may have a bit more spending money, they still have to be selective about where they use it.
A recent study from Provoke Insights shows that compared to six months ago, patrons frequent full-service restaurants 50% less, fast casual 45% less and fast food 42% less. When deciding to dine out, 71% of consumers have made budgeting changes, such as selecting cheaper menu items and cutting out desserts and appetizers.
“As the holiday season approaches, restaurants must use innovative techniques to get customers through the doors,” said Carly Fink, president of Provoke Insights.
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