As restaurants grapple with rising ingredient and supply costs, many big-name brands are leveraging their scale to price out competitors, unveiling new value menus to meet growing consumer demand. consumers for cheaper options. Chains such as major quick-service restaurant (QSR) brand Domino’s Pizza, drive-in brand Sonic, Mexican-inspired QSR chain Del Taco and others have announced new value-focused offerings lately. month.
Casual dining giant Chili’s, for its part, announced earlier this month the launch of its new “3 for me” menu featuring a drink, appetizer and main course starting at $10.99. Michael Breed, senior vice president of marketing for Chilean parent company Brinker International, spoke to PYMNTS about how the brand uses a wide range of options as a key differentiator from other value offerings.
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“Flexibility was a guiding principle in designing this menu,” Breed said.
He noted that in previous menus, consumers only had a choice of non-alcoholic drink options when ordering from the value menu, but this update includes the option to switch to an alcoholic drink such a margarita, draft beer or glass of wine rather than requiring customers to place an order for an additional drink separately.
Restaurant prices are increasing more and more every month. The consumer price index for all urban consumers (CPI-U), reported by the US Bureau of Labor Statistics (BLS) on Friday June 10, indicates that out-of-home food prices (i.e. say restaurants) were up 0.7% month-over-month in May, compared to 0.6% in April, and they were up 7.4% year-over-year in May, against 7.2% in April.
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This price hike is particularly concerning given that the majority of consumers live with no real financial safety net to fall back on. Research from PYMNTS’ recent study “New Reality Check: The Paycheck-to-Paycheck Report – The High Earners Edition”, created in collaboration with LendingClub, which is based on an April survey of more than 4,000 American consumers, reveals that 61% of them are living paycheck to paycheck, with 35% of those consumers doing so with difficulty.
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As such, it’s no surprise that price is a priority for many restaurant patrons when deciding between different dining options. According to data from PYMNTS’ April study, “The Digital Divide: The Key Factors That Drive Restaurant Choice,” created in collaboration with Paytronix, which is based on a survey of more than 2,600 American adults who regularly shop for restaurant food, 42% of diners cite everyday prices as an important factor influencing their restaurant choice. Moreover, of this 42%, 21% consider this consideration as the most important driver for choosing a restaurant.
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The spice of life
Chili’s, for its part, is leveraging not only its value offerings, but also the breadth of its menu to meet the challenges posed by rising costs.
“Our extensive menu tends to help hedge against inflationary pressures,” Breed said. “If the cost of certain items increases at a faster rate, we can lean more towards another. This strength in variety is helping us to ease pressure on margins.
Notably, this move is in almost direct opposition to what some other brands are doing, streamlining their menus and reducing the number of ingredients. Granted, part of this simplification comes not from cost issues but from labor issues, with many restaurants trying to increase the number of orders their existing staff are able to fulfill in a set amount of time.
Ultimately, as brands try to fight inflation, different strategies work for different types of restaurants. For some brands, other strategies will prove more effective. Chipotle, for its part, raised its prices, relying on brand affinity to support sales in the face of these actions.
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Other restaurants are taking a stealthier approach, slipping new fees onto the consumer total in an effort to meet these rising costs without alienating customers with a menu price shock.
Additional details: Restaurants slide in new consumer fees as their costs soar
Still others take the “shrinkflation” route, reducing the portion sizes of menu items while keeping the menu price constant.
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For Chili’s, the new value menu and emphasis on variety may be the best move, leaving options open for changes down the line.
“We saw an opportunity to clearly identify where the best value is on our menu,” Breed said, “and we wanted to make sure the menu could continue to evolve.”