CPI Drops While FSR Restaurant Prices Tick

Headline CPI dropped by more than expected, which is good news especially for those counting on an interest rate drop before the end of the year. Restaurant inflation, however is more stubborn. Limited-Service CPI continued its decline as QSR’s commit to discounting programs – but Full-Service Restaurant CPI jumped back up to 3.9%.

One of the best articles I read over the past few weeks on pricing (thanks for forwarding 🟦 Christopher Sebes ), addressed not only consumer ‘inflation fatigue’, but the consumer fatigue with the idea of changing prices. The article points to an interesting idea – that the fatigue isn’t just about things getting more expensive – it’s also about price uncertainty and how unsettling that can be. It got me thinking about Prospect Theory, a concept that has been used in support of Dynamic Pricing because changing prices can be ‘framed’ as discounts rather than ‘surge pricing’. But the central premise of the theory is about certainty versus risk & it tells us that people are willing to pay more for certainty. When I think about how this applies to the decades of promotions and price points I’ve analyzed it's startling how often 'price certainty' was a stronger predictor of driving customer traffic than 'price off'.

Many of the most iconic price related restaurant promotions have not been “price off” (save 25%, $5 off etc), they have been fixed price points – Dollar Menu, 4 for $4, $5 foot long, Buck & Change – even historically at $49 and $79 the Ruth’s Classics provided price certainty without ‘discounting’.  Now once again the large QSR’s are finding a discount strategy, seeming to rally around a $5 price point which seems to be working with some demographics. As a strategic consideration it’s essential for brands to consider what message their pricing strategy sends to their customers. I recently saw a pricing company suggest that the answer to consumer inflation fatigue was a larger dose of ‘dynamic pricing’. I’m skeptical. I think a little more price certainty after a tough run of pricing fatigue will go a long way. I’m not suggesting a price freeze, businesses need to adapt to their local economic realities – but now is a time where even subtle price moves should be taken with measured discipline.