Inflation

  • According to the WSJ, inflation is slowing way down
    • 2.5% for the past 5 months
      • PCE (Personal Consumption Expenditures – what the Fed uses)
        • Measures based on gross domestic product report
      • CPI (Consumer Price Index)
        • Measures based on household surveys (not as comprehensive either)
    • Past 12 months it’s at 5.5%, but was at 7.8% for the first seven months of that span
    • Can’t do a victory lap just yet, but the signs are there!
  • For five months, we have experienced a decrease in true inflation, but prices have not followed suit
    • CPI Price Changes for 12 months – +7.1%
    • PCE Price Changes for 12 months – +5.5%
  • It’s only been five months, and this could sway, but it’s telling.
    • Is it telling enough for you to bet on?

So what should you do?

  • Technomic has been reporting for the past year that consumer trends point to less visits, but bigger spend per visit.
  • Restaurant sales up, but so are prices (all-time highs), so is it sustainable?
    • January through October 2022 – up 8.6%
  • Common sense says that if restaurant visits are down, purchases are down and that means demand is slowing.  Supply should then rise, and prices should go down. 
  • Speaking as a consumer and consultant, I truly feel the best competitive advantage this year is going to be value
  • Some are going to race to the bottom on pricing whenever they get a chance
    • Olive Garden lowered across the board in Q3 ’22
      • Between 1 and 5% across most of the menu
  • Some solutions we are seeing
    • Keeping menu prices the same/high, but offering deep discounts on featured items to drive traffic
      • Better in bundles
    • Dynamic pricing
      • Pricing hikes during peak times when demand is the highest, and the opposite during slow times
    • Gradually lowering menu prices on certain items where they can
  • Episode 18:  Menu Engineering


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