- WHITE PAPERS
Although Americans' wallets may feel thinner because of the recession, consumers are apparently willing to spend almost a dollar more on lunch. New research from Intellaprice, a pricing intelligence firm serving the restaurant and beverage industries, concluded that most food items were more expensive in 2010 compared to 2009.
Intellaprice’s study, in its fourth year, was conducted in August and September and involved price information for nearly 12,000 beverages and 14,000 food items from casual dining chains in 21 markets nationwide.
The research concluded that entrees were up by 6 percent to 13 percent, while alcohol prices were up 3 percent.
“In a recession when restaurant customers are perceived to be worried about high prices, you might guess that price increases on entrées would be minimal. And you’d be wrong,” said Leslie Kerr, pricing consultant and Intellaprice founder. “What we’re seeing instead is the classic loss leader pricing strategy.”
A loss leader is a heavily discounted product, such as a dollar double cheeseburger, designed to bring customers through the door. But as customers also buy a drink and fries, or bring in dining companions, the loss is offset.
“There’s no question that deals are still the top means of luring guests in,” Kerr said. “You may see price promotions on TV, but the overall menu tells another story: the need to cover costs through price increases.”
Findings concluded that lunch entrees were up by 93 cents; dinner entrees increased by 72 cents; and kids’ entrees rose by 30 cents. Side items and appetizer costs also were higher. The only categories that showed price decreases were add-ons and desserts.
New York boasts the most expensive dinner entrees, averaging $15.01, while Los Angeles had the most expensive lunch entrees, at $9.27 on average.
Alcoholic beverage prices increased at a slower pace than entrees, according to the study. While bottled beer and cocktail prices were up, domestic and imported draft beer prices were down 8 cents and 11 cents, respectively.
“This year, increases of more than 20 cents on cocktails are rare,” Kerr said.
Though the 19-cent average increase on drinks may seem low, Kerr said it’s based on a lower average price of $5.86 in 2009 that rose to $6.05 in 2010.
Traditionally, a high portion of restaurants’ profits come from the bar. And, while Intellaprice’s research shows a conservative change, and even a price decrease in drafts, alcohol sales are expected to increase by nearly 2 percent in 2011. This projection is according to Technomic, a food and beverage consulting company based out of Chicago.
Technomic’s prediction is attributed to an improved sales climate at eating and drinking establishments, and an increase in away-from-home entertaining.
“The past several years were brutal for the alcohol category in bars and restaurants. Consumers were trading down to value offerings or simply not ordering alcohol at all,” said David Henkes, vice president at Technomic. “As conditions improve, we expect to see positive sales growth in 2011.”
Spirits-based drinks will see the highest rate of growth in 2011 at 2.3 percent, with some return to more expensive cocktails and premium brands. Wine sales will increase by 1.4 percent, and beer sales are expected to grow 1.6 percent and will be supported by continued strength in the craft/microbrew category.
While restaurants continue to bring in crowds, despite higher tickets, and alcohol flows abundantly, not all signs are pointing toward a full recovery just yet.
Kerr said the price increases mean restaurants are doing all they can to maintain profits.
“The goal of the discount meal deals you see on TV is to increase customer traffic. But we’ve seen some brands report that their profit suffers because of the deep discounting -- traffic is up, but average spending per meal goes down. The restaurants need to do what they can to offset the profit loss from discounts,” she said.
Henkes added that the industry still has a way to go for full recovery.
“The fact is we’re comparing 2011 to a very weak year in 2010,” he said. “There are still some longer-term structural issues in the economy, including unemployment, that tell us that the improvement in alcohol sales won’t be as robust as it has been after previous downturns.”