Price Increases Could Lead to Losses if Affordability Trend is Side-Lined

Price inflation has affected all areas of the foodservice value chain, from raw material prices to the final menu product. This has put significant pressure on consumers in the UK, as the cost-of-living crisis has forced cutbacks on spending, says GlobalData. The leading data and analytics company notes that in order to help manage their household budgets, consumers may choose to omit or adapt some of their usual spending occasions such as eating out and other leisure activities.

Ramsey Baghdadi, Consumer Analyst at GlobalData, comments:
“In response to this challenging economic environment, restaurant operators such as McDonald’s are going to find a tough audience in the UK, as many people are forced to tighten their purses. Value positioned businesses such as McDonald’s and Pret a Manger, in particular, are going the opposite way in terms of affordability and will suffer losses if they raise their prices dramatically as living wages take their toll on consumer expenditure.”

These operators are at a higher risk of backlash from patrons than a premium positioned restaurant due to three main factors: consumer expectations, dining occasions and overall out-of-home experience.

According to the latest survey from GlobalData, close to two thirds* of UK consumers are worried about their financial situation. Therefore, regular promotions and discounts or even introducing a range of lower-priced items will be necessary in the long-term.

Brands and manufacturers will need to determine the position they are going to take to help consumers through financial uncertainty and retain their loyalty. Middle ground, mass-market and challenger positions, where there is less differentiation, are more likely to feel the squeeze so it will be important to be distinctive in the offering made to consumers.

Baghdadi continues:
“Full-service restaurants continue to have a leg up in this regard as their customers are often willing to pay more for a premium experience and special occasions – something that a chain targeting the daily lunchtime rush based on affordability and convenience simply can’t match.”

As financial and economic uncertainty continues and recession is a possibility on both national and global levels, consumers will continue to find ways to spend less. A range of consumer strategies and behaviors will have to be adopted as individuals and households decide what concessions they will have to make and what compromises they are willing to accept.

Baghdadi adds:
“Low price points remain a key indicator of value for money for consumers. When considering tighter household budgets, a significant number of consumers will focus on low costs of individual items to try and manage their total spend. Quick-service restaurants like McDonald’s may witness a loss if prices of affordable/money-saving meal options are raised, as a high percentage of consumers are likely to continue budgeting long-term.

“Given the rate of inflation, fast-food operators may lose customers to homemade lunches and retail meal deals if they can’t meet consumer expectations – putting many between a rock and a hard place.”