Restaurants raised prices late last year, but how much they raised them depends on what’s on the plate.
That, at least, is according to a menu price analysis from the fourth quarter of last year by Restaurant Business sister company Technomic.
Overall, according to the analysis, restaurants raised prices 4% compared with the year before. But some prices increased more than others. Prices for mixed protein dishes, for instance, increased 9.7%.
But prices for, say, white wine actually decreased 4%.
Indeed, the range of prices can be seen most acutely in the beverage category, where a restaurant’s pricing decisions depended in part on whether the drink contained alcohol. Adult beverage prices increased 1% last year.
Prices for non-alcoholic beverages increased 6.6% in the fourth quarter, according to Technomic.
Blame cold coffee. Prices for cold coffee beverages skyrocketed last year: Iced espresso prices are up 22% over the past year while cold brew coffee is up 17.4%. Iced specialty befverage prices increased 14.1%.
Cold coffee has become far more popular among consumers, becoming the dominant source of sales for chains like Starbucks.
But Rich Shank, managing principal with Technomic, also worries that brands are raising prices on more profitable items to make up margins. So they may be raising prices for fountain drinks, hoping to make up for the profits they’re losing on that cheeseburger.
“Non-alcoholic beverages have been a financial crutch for restaurants for a long time, especially sodas,” Shank said. “Relying on those crutches now could be fairly problematic. I would urge those restaurants that have taken an amount of price on their beverages to figure out what they’re doing to attachment rates.”
In other words, he said, the higher beverage prices could drive more customers to get water instead.
Pricing is a key issue for restaurants right now. Brands and their franchisees raised prices aggressively in recent years to account for their own cost increases. Lower-income consumers, burdened by inflation, have cut back on their restaurant visits, particularly at fast-food restaurants.
But generally, consumers have for the most part kept up their restaurant spending, despite frequent complaints about the cost of a Big Mac meal or a night out at Five Guys.
Indeed, Shank said that consumers’ willingness to pay for restaurant meals increased 30% since the pandemic, while prices are up 24%.
Consumers were employed and had more money and are less likely to cut out restaurant spending than they might have in the past. “When we looked at the relationship between traffic growth and price increases at the chain level, we didn’t really find a textbook correlation where you would expect demand to go down with pricing,” Shank said.
Rather, he said, some lower-end brands saw traffic declines because they struggled with their value proposition.
Still, Shank believes that operators should hold off the gas on price increases, or at least get them back down to more normalized levels.
“When we look at what consumers are willing to spend, versus where price increases have led us, you currently have a premium product price,” Shank said. “And if we keep going beyond that, fast casual is going to be turning into upscale casual price points pretty quickly.”
Still, costs have driven much of the price increases by item. It’s why beef dishes are up 8.2% over the past year and pork dishes are up 6.6%. Protein prices remain in an inflationary cycle. In addition, demand for those items gives operators a license to increase them more aggressively.
By comparison, items like sides (up 1%) don’t have quite the demand, so restaurants may not be as willing to raise those prices.
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