The fast-casual segment has historically posted strong traffic growth, even while other segments struggled. But in the quarter ended June, the once revved-up segment hit a bump in the road, and posted a 3-percent decline in traffic.
Even excluding Chipotle Mexican Grill, which is still struggling in the aftermath of a food safety crisis, the fast-casual segment showed only 1-percent growth.
Additionally, total quick-service traffic came to a standstill in the quarter ended June, showing no growth, and then, in August, turned negative, according to the latest research from The NPD Group.
“It’s political, concern about the economy. It’s uncertainty, food safety, social unrest,” said NPD analyst Bonnie Riggs. “But probably the biggest thing is sticker shock.”
“Sticker shock” is being felt most profoundly at lunch. The mid-day meal, which accounts for more than a third of all restaurant visits, posted the most severe traffic losses, while also seeing significant price hikes over the last six months.
All segments have contributed to the losses, and have raised prices at lunch, but fast casual contributed to more than its fair share, NPD found.
Total industry traffic at lunch dipped 4 percent in the most recent quarter, and average check price increased as much as 5 percent, NPD found.
Of the total negative traffic volume at lunch, 12 percent came from fast casual, double its overall market share, where the average check increased by 5 percent, to $8.36, the highest of any other segment.
Meanwhile, quick-service retail accounted for 17 percent of lunch losses, and the average check rose 4 percent, to $4.69. Traditional quick-service restaurants accounted for 38 percent of lunch losses, and the average check rose 3 percent, to $6.40.
“Price value, especially at lunch, is out of whack,” Riggs said. “Consumers have cut back because they can’t afford to go out for lunch every day.”
What do consumers considerable an affordable lunch? The price at which fast casual consumers are the most satisfied, their “sweet spot,” is between $7 and $9, NPD found. At traditional quick-service restaurants, its between $5 and $7.
“[Operators] can’t pass on this much price to consumers,” Riggs said. “Traffic is going to go south.”
Out to lunch
Whether or not they are feeling the impact of consumers going out to lunch less, many fast-casual operators are trying to better position themselves at the mid-day meal. Executives from fast-casual chains Pita Pit and Slim Chickens shared how they are working to keep price-sensitive diners doing lunch at their place.
To combat increasing consumer price sensitivity at lunchtime, Pita Pit, which specializes in pita bread sandwiches, is launching an array of initiatives to give customers a choice between higher priced items and visiting less.
For example, the 250-unit chain’s menu currently features 8-inch pitas priced at about $7 each, but it will launch 6-inch pitas priced at just over $5 nationwide on Jan. 1.
“With the smaller sized pita, at least customers have an opportunity to make a choice,” said Patrick O’Dell, Pita Pit director of marketing.
The chain is also examining its soup program in anticipation of creating affordable combo deals for 2017, featuring the smaller pita and soup or a smoothie.
Other initiatives include a September back-to-school event at 64 locations, offering 8-inch pita sandwiches for $3.99 each. And a mid-September launch of a Souvlaki Trio, featuring Savory Asian Chicken, Signature Zeus and Smokehouse Chicken pitas designed to offer customers more flavor, as part of the chain’s new Fresh Grilled, Flavor-Filled campaign.
“Traditionally, late fall has been a tough time for us,” O’Dell said. “It’s been the right time to combat seasonality, combat price sensitivity.”
Traffic at lunch hasn’t significantly slowed at Slim Chickens, so executives at the 20-unit chicken chain say they are going to continue to stick to their value-centric strategy.
“We are focused on value,” said Tom Gordon, Slim Chickens co-founder and CEO. “Value equals everything. Value is the entire experience.”
Rather than cut prices, the chain is focused on adding more value. For example, the chain launched on Sept. 6 its first sandwich, the Cayenne Ranch Chicken Sandwich. Made with chicken breast topped with a spicy cayenne ranch dressing, Southern-style onion strips, lettuce and pickles on a bun, the sandwich improves upon its chicken tenders sandwich.
“We felt it wasn’t representative of the quality we wanted to deliver our guests,” Gordon said.
Priced at $3.99 by itself and at $6.79 as a combo meal, the Cayenne Ranch Chicken Sandwich falls right inside the fast-casual pricing sweet spot as defined by The NPD Group. So far, Gordon says the new sandwich has been performing great at lunch, as well as dinner.
“From a macro level, we’re staying the course,” Gordon said. “We’ll continue to ideate around the edges of the menu, but stay true to our core menu items.”