Another peculiar COVID-19 reality is emerging for restaurants. Consumers understand staying open comes at a cost. But while they’re willing to go along with higher prices, they’re also more conscious of the value proposition than ever, according to a recent study from Datassential.
In September, data from Coca-Cola found operators, on average, spent $7,400 to adjust to pandemic life. While that doesn’t sound like a mammoth figure, 66 percent of owners said it would take at least six months to recoup the investment. In a previous National Restaurant Association survey of nearly 4,000 operators, 75 percent thought it unlikely they’d be profitable within the next six months with no additional federal aid.
Restaurants are being tugged by extra costs stacked on lower revenues, which is why they’re looking to cut anywhere they can, such as slimmed menus and other efficiency tactics.
Domino’s recently shared it forked up roughly $11 million in Q3 alone between hiring, bonuses, sick-pay policies, and sanitary supplies.
Consumers are increasing visits to restaurants and gathering places in recent months, Datassential said. However, just because they’re eager to escape lockdown behavior, they aren’t necessarily willing to pay anything for the privilege of dining out again. Simply, they notice what they’re asked to contribute in COVID times.
But this isn’t doomsday news. Restaurants need to rethink how transparent they are with pricing, and where the hike is seen by guests. “Instead of tacking on fees that make people feel nickled and dimed, operators should adjust prices fairly and ensure an enjoyable overall experience to nail perceptions of value,” Datassential said.
In clear terms: make it worth it.
Compared with six months earlier, more Americans reported spending as much as they had before the onset of COVID, according to Datassential’s study, fielded October 8–14 across about 500 U.S. consumers.
This potentially indicates financial stabilization for a lot of folks. Or, spun differently, they’ve learned to budget during a pandemic, as strange as that sounds.
- 28 percent: Situation hasn’t changed; spending as much as before (up 9 percent since April 13)
- 29 percent: Situation hasn’t changed, but I’m trying to spend less (down 5 percent since April 13)
- 43 percent: Money is tighter due to COVID (down 4 percent since April, and significantly less likely for Boomers at 31 percent)
The trends lines are crystal. People are loosening their purse strings, albeit slowly.
Another positive turn for restaurants is the competitive set and how it relates to value. When it comes to sticker shock, grocery stores are stunning consumers more than restaurants.
Datassential suggests restaurants could take price in response, as more people perceive prices rising at C-stores and supermarkets, including two-thirds of shoppers at grocery stores.
“Since the onset of the pandemic, to what extent are prices you pay for food and beverages increasing or decreasing?”
Grocery stores
- Rising significantly: 27 percent
- Rising moderately: 42 percent
- Not sure: 26 percent
- Falling moderately: 4 percent
- Falling significantly: 2 percent
Casual sit-down restaurants
- Rising significantly: 17 percent
- Rising moderately: 24 percent
- Not sure: 53 percent
- Falling moderately: 4 percent
- Falling significantly: 3 percent
Gas stations/C-stores
- Rising significantly: 13 percent
- Rising moderately: 34 percent
- Not sure: 38 percent
- Falling moderately: 12 percent
- Falling significantly: 4 percent
Fast-food restaurants
- Rising significantly: 13 percent
- Rising moderately: 29 percent
- Not sure: 53 percent
- Falling moderately: 3 percent
- Falling significantly: 2 percent
A couple of things leap out. The grayest areas on price exist with restaurants. Perhaps this is a reaction to buying carts full of product at the other outlets, with prices front and center on the tag. But it also could relate to guests trying to decipher the COVID experience trade-off of dining out. Also, how delivery backdoors some fees to muddy the value equation. There is room to educate the customer here and whitespace to get personal with guests.
Explaining upcharges and how they help the restaurant, as well as where the money actually goes, would be a rather different experience than seeing fees at the checkout or simply racking up higher bills each week at the grocery store than someone was used to.
In a COVID world where loyalty and familiarity reigns, restaurants can speak one-to-one to loyal customers and enable them to play an active role in aiding their favorite restaurant’s survival.
In a past survey from the Association, 89 percent of adults said they were concerned businesses in their community, like restaurants, would not endure the economic fallout of COVID. More than half of those same people (56 percent) said they were aware of a local restaurant that permanently closed.
Yet 88 percent of respondents said restaurants are an important part of their communities, and 78 percent agreed going out to their favorite spots was one of the things they missed most since the pandemic’s onset.
People want restaurants to make it. And if charging higher prices is the path to get there, it might be smarter to remain upfront rather than try to sneak fees in. The last thing cost-cutting consumers want in a global crisis is trickery.
Which sectors are making out?
More consumers found room in their budgets for restaurants, salons, and gas stations compared to six months ago, Datassential said.
“In the past month, due to COVID, have you cut back on spending for any of the following categories?”
Food from restaurants
- October 14: 48 percent
- April 3: 57 percent
- Change: –9 percent
Clothing
- October 14: 42 percent
- April 3: 38 percent
- Change: 4 percent
Personal care/grooming
- October 14: 32 percent
- April 3: 36 percent
- Change: –4 percent
Gasoline
- October 14: 29 percent
- April 3: 37 percent
- Change: –8 percent
Subscriptions (gym dues, book clubs, etc.)
- October 14: 29 percent
- April 3: 24 percent
- Change: 5 percent
Entertainment subscriptions (Netflix, etc.)
- October 14: 25 percent
Coffee (habitual coffee shop purchases)
- October 14: 23 percent
- April 3: 23 percent
- Change: Flat
Charitable giving
- October 14: 22 percent
- April 3: 20 percent
- Change: 2 percent
Groceries
- October 14: 22 percent
- April 3: 19 percent
- Change: 3 percent
Alcohol
- October 14: 21 percent
- April 3: 23 percent
- Change: –2 percent
Toys/gifts for my kids or pets
- October 14: 21 percent
- April 3: 21 percent
- Change: Flat
It’s interesting there’s zero movement on the habitual coffee occasion. Given work-from-home dynamics, this could linger as one of the slower recovering trends. Expect to see brands like Starbucks and Dunkin’ continue to push into additional channels of distribution, like delivery, while also leaning into off-peak behavior. Namely, mid-morning and afternoon “break” occasions where guests want to take a few minutes off instead of the old standard—getting their day started.
Speaking of delivery, and the earlier mystery fee notion, Domino’s CEO Ritch Allison spoke earlier in the month about this exact thing. “When we think about the relatively low and transparent delivery fee that we charge our customers versus what you’re seeing with the aggregators, this really is a key part of our value proposition for our customers,” he said. “And all of us have ordered third-party delivery, most of the time, it’s really hard to figure out what you’re being charged, because you might be getting a free delivery, but then you go and then you see a line that says taxes and fees.”
… And for those of us that had been in the delivery business forever, we don’t know what the service fee is, if it’s not paying for having the delivery brought to you,” Allison added.
Like most multi-unit chains, Domino’s delivery fees vary market-to-market based on labor rates. Higher wages, higher delivery fees, etc. But where Domino’s differs from some aggregators is when it tells guests delivery costs an additional $3.49, it costs $3.49. There’s nothing lumped in at the end.
Per Datassential’s survey, nearly half of people saw delivery as more expensive.
“Have you noticed a difference in prices when you get a restaurant meal delivered compared to dining in or getting takeout?”
- 23 percent: Prices are somewhat higher for delivery
- 20 percent: Prices are significantly higher for delivery (more prevalent for millennials at 29 percent and less for Boomers at 8 percent)
- 22 percent: I’m not sure/I haven’t noticed
- 2 percent: Prices and somewhat lower for delivery
- 1 percent: Prices are significantly lower for delivery
- 31 percent: N/A: I never get meals delivered (lower for millennials at 19 percent and higher for Boomers at 55 percent)
Customers said they could accept delivery fees and higher prices—if they’re seen as equitable.
Nearly half of consumers noted they’re willing to stomach a COVID surcharge on the bill, but more willing to absorb a restaurant’s costs if reflected in menu prices.
“Please rate your level of agreement regarding prices at restaurants.”
Delivery fees are necessary for paying the drivers, regardless of what the restaurant does with menu prices
- Agree completely: 38 percent
- Agree somewhat: 33 percent
- Neither: 21 percent
- Disagree somewhat: 5 percent
- Disagree completely: 4 percent
I can pay a little more knowing that restaurants are struggling to stay open with fewer customers
- Agree completely: 27 percent
- Agree somewhat: 41 percent
- Neither: 22 percent
- Disagree somewhat: 5 percent
- Disagree completely: 5 percent
Restaurants are justified raising menu prices for items to be delivered instead of eaten inside
- Agree completely: 20 percent
- Agree somewhat: 35 percent
- Neither: 27 percent
- Disagree somewhat: 11 percent
- Disagree completely: 7 percent
I can pay a COVID surcharge a restaurant might choose to add to my bill to pay for safety precautions
- Agree completely: 21 percent
- Agree somewhat: 28 percent
- Neither: 27 percent
- Disagree somewhat: 13 percent
- Disagree completely: 12 percent
There’s a pretty wide split on the COVID surcharge debate. Not so much with paying more to help struggling restaurants. Give customers a clear and concise blueprint to play their part and they’ll have less reservations. It’s kind of like a “round up” campaign on the check side direct to the restaurant. Here’s what you’re giving to, here’s why, and here’s how.
Raydiant, a company that turns in-store screens into branding and sales tools, also conducted a study of 100-plus restaurant operators. It found 37.5 percent believed they would not have been able to stay afloat without third-party delivery. But 38.5 percent noted receiving negative reviews from customers because of an issue with vendors. Additionally, 28 percent expected to close dine-in spaces to become exclusively delivery and pickup locations.
Nearly 30 percent (28.8 percent) said 21–30 percent of their sales were stemming from aggregator apps. What this tells us is delivery might be a challenging field, as it’s always been, but it’s also become an essential one. Understanding the value proposition and educating guests is a critical part of it.
One of the steadiest COVID changes for restaurants has been higher checks—thanks to group orders—and more weekday business.
Consumers in Datassential’s study appear to have figured out how to visit restaurants more often, but spend less. This could be a sign check averages will slide to (somewhat) normal, pre-virus levels in time. This will continue to differ from delivery to dine-in. The first generally carrying larger orders (as it did before COVID) and the second enjoying more beverage mix, not necessarily alcohol.
“Relative to dining out, how have you tried to save money while using restaurants?”
Choosing less expensive restaurants
- October 14: 28 percent
- April 13: 22 percent
- Change: 6 percent (good news for quick-serves)
Skipping appetizers/sides/desserts
- October 14: 27 percent
- April 13: 14 percent
- Change: 13 percent
Ordering from restaurants less often
- October 14: 26 percent
- April 13: 38 percent
- Change: –12 percent (this is the foundation behind the “people are eating out more today” sentiment)
Ordering from value/dollar menus more often
- October 14: 25 percent
- April 13: 18 percent
- Change: 7 percent (also good news for quick-serves and the reason the COVID surcharge conversation is so vital)
Choosing less expensive menu items
- October 14: 24 percent
- April 13: 19 percent
- Change: 5 percent (see above. As many restaurants suggested, value is going to play a critical life now and after COVID. So how do you raise prices without souring the differentiator?)
Ordering less delivery (avoiding fees, tipping)
- October 14: 24 percent
- April 13: 17 percent
- Change: 7 percent
Skipping beverages, just having water
- October 14: 23 percent
- April 13: 15 percent
- Change: 8 percent
Ordering carryout instead of dine-in (avoiding tipping)
- October 14: 22 percent
- April 13: 15 percent
- Change: 7 percent
Skipping alcoholic beverages
- October 14: 22 percent
- April 13: 12 percent
- Change: 10 percent
Using more coupons
- October 14: 21 percent
- April 13: 23 percent
- Change: –2 percent
Ordering more shared/bundled items, family meals
- October 14: 18 percent
- April 13: 15 percent
- Change: 3 percent
Datassential shared a few responses from guests on the idea of their favorite restaurant raising menu prices due to COVID. What could the concept offer the consumer to make the experience worth it?
“I would say more specials, maybe. I understand their position, but everyone is hurting. I order
out occasionally to help keep my morale up, or I wouldn’t do it at all for financial reasons.”
“One idea might be to offer free beverages with any order over a certain dollar amount.”
“You know, I get it. In order to stay open, they may have to charge more. But offer some incentives like coupons, free non-alcoholic drinks, a free appetizer, a $5 gift card, anything to show you appreciate my business.”
This is a great point and something restaurants have historically done. How many gift cards are purchased and never used? A lot. Plus, dangling a high-margin item to get a larger order, or repeat traffic, could make sense. Panera and its coffee subscription program (a pre-COVID measure) is a good example of this traffic-building, food-attachment approach.
“Nothing at all. If it’s a restaurant I enjoy, I will still go until the prices become so outrageous. It’s a favorite spot-by-spot decision.”
“They have to provide logistics to safeguard customers from coronavirus.”
“I would support the raise in prices from my favorite restaurant due to coronavirus’s effects, because the restaurant isn’t responsible for circumstances that forced them to increase prices.”
