Getting “butts in seats,” so to speak, at most restaurants used to be about delivering good food and a great experience.
But inflation has put a big dent in consumers’ discretionary spending. New research finds that only 42% of U.S. consumers are willing to pay full price to eat at a restaurant they used to call their go-to spot.
How are restaurants responding? By trading margins for discounts — averaging 24% off menu prices — in the hopes of keeping loyal customers returning and convincing new ones to give them a try.
PYMNTS’ data suggests that a big part of the consumer’s pullback on prices is their perception of how much more it costs to dine out. Consumers believe restaurant prices increased roughly three times more than they actually did in the past year, when, in fact, the typical increase was 7.4%. Unsurprisingly, consumers are chasing the deals with this in mind. Sixty percent of diners said that discounted prices are one of the most important factors when choosing a restaurant, and one in four consumers paid a reduced price at a restaurant in February.
These are a few of the findings in “Connected Dining: Consumers Like the Taste of Discount Meals,” a PYMNTS report based on a census-balanced survey of 1,825 U.S. consumers conducted from Feb. 8 to Feb. 13. PYMNTS sought to understand consumers’ reactions to the rising cost of food, particularly when dining out, and whether they are changing their dining habits. We also researched how the availability of meal discounts impacted their decisions.
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This is what we learned.
The popularity of discount meals has almost doubled in the past year.
The portion of consumers who said they are taking advantage of discounted meals is 86% higher than it was last year. In February, 26% of consumers used a discount on their most recent purchase from a restaurant. Just 14% of consumers took advantage of restaurant discounts in March 2022.
Consumers found meal discounts more appealing this year not just because meal costs have risen but also because they believe there has been an exceptionally large spike in costs. Consumers perceived an average increase in restaurant prices of 23% in the past year — more than three times the 7.4% increase reported by the Bureau of Labor Statistics.
The perception of higher costs has prompted 60% of restaurant patrons to say deals and discounts are now more important factors to consider when choosing a restaurant.
Higher prices prompted 42% of restaurant patrons to change which restaurants they chose and to use discounts to receive lower-cost meals. Twenty-nine percent of consumers who ordered from quick-service restaurants (QSRs) and 48% of consumers who ordered meals online received discounts for their most recent purchases.
When consumers do not get meal discounts, other factors, such as the food’s taste or the quality of the restaurant’s service, take on greater significance.
Despite consumers’ overall frustration with the rising cost of food, it should not surprise anyone that the food’s taste and familiarity with the restaurant drive dining choices. PYMNTS research found that taste and familiarity are seven times more likely to influence consumers’ decisions about where to eat than the presence of a discount.
The qualities consumers find most important take on greater significance when they do not use discounts compared to when they do. Sixty-eight percent of consumers who did not get discounts and 58% of consumers who did said the taste of the restaurant’s food influenced their decision. Fifty percent of consumers who did not get discounts said their familiarity with the restaurant influenced their decisions, as did 49% of consumers who did get discounts.
Just 7.5% of consumers said the presence of a discount influenced their choices about where to eat, although when discounts are available, consumers’ evaluation of the entire meal is influenced.
Discounts influence consumers’ thinking, even if the effect is modest. The overwhelming majority of restaurant customers like the meals served to them, but they like them a little more when a discount is involved. Eighty-one percent of consumers who paid full price for their meals said the dining experience was satisfactory. This jumps to 86% when discounts are factored in.
Restaurants are offering discounts of up to 25% to stand out from the competition.
Restaurants have turned to loyalty and rewards programs as well as other forms of discounting to drive customer traffic and increase revenue. But even when these programs succeed, there is a risk that the expense of operating them, including the commissions paid to third-party aggregators, can squeeze profits.
PYMNTS found that the average meal discount is $12, or 24%, and is relatively consistent on a percentage basis across channels and restaurant categories. But discounts of that magnitude can erase a restaurant’s profits, leaving them with full dining rooms and empty cash registers.
Discounts are available via first-party apps, aggregator apps and menus with special meals at reduced prices. Forty-three percent of restaurant patrons with annual incomes of less than $50,000 obtained discounts from restaurants’ first-party apps, making them the most likely to use this channel.
Forty-three percent of consumers earning more than $100,000 annually earned reward points from frequent use of the payment methods that are linked to loyalty program incentives, which is more than other consumers.
Rewards and discounts may be more of a boon for customer loyalty at QSRs than table-service restaurants.
Fifty-one percent of restaurant patrons used restaurants’ loyalty programs in January, mostly at QSRs, where the customer base is more price sensitive. Customer participation in QSR loyalty programs grew 15% in the last year, while patrons of table-service restaurants, who tend to be more willing to pay extra for good food and an enjoyable dining experience, increased their participation in rewards programs by just a modest amount.
For some customers, the lack of a loyalty program is not enough to persuade them to avoid some restaurants. Sixty percent of table-service restaurant patrons cited the lack of loyalty programs at restaurants they visited as a reason for not having used such a program in the last 30 days. Twenty-eight percent of QSR customers said they had not used a loyalty program recently because the restaurants they visited did not have one.
But when the loyalty program is there, how a restaurant delivers it matters.
PYMNTS’ data suggests that small restaurants that have or want to establish loyalty programs should consider a diverse set of strategies. Before they launch their own first-party app, they may have to weigh whether they would be better served by linking up with a third-party aggregator that provides a shared app.
Twenty-six percent of consumers who had not used a restaurant loyalty program in the last 30 days said they did not want additional apps on their phones, and 32% of consumers who ordered meals from QSRs without using their loyalty programs did not want more apps on their phones.
The rising cost of dining out puts restaurants in a difficult spot. They can keep customer traffic flowing in the door thanks to meal discounts. But with so many meals sold at a discount, it becomes harder for restaurants to earn a profit in what has always been a difficult business. Restaurants are counting on the extra volume that arises from the discounts and other promotional efforts to boost revenue enough to override tighter margins.
“Connected Dining: Consumers Like the Taste of Discount Meals,” is the most recent installment of PYMNTS’ Connected Dining series. For more, read the previous edition, “Connected Dining: Rising Costs Push Consumers Toward Pickup.”
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