Understanding Price Growth: Key Insights and Strategies in the Fast Food Industry

All of us buy groceries in stores and order meals in restaurants… We couldn’t help but notice how prices have risen over the past year… But businesses need more detailed information for effective operations. For example, it is vital to know the extent of this price growth, how it relates to inflation, and whether, or not, growth is uniform among all players, channels, and products. What methods do competitors use to minimize the negative impact of price growth on consumers?  In this article, Meaningful Vision provides answers to the key questions and outlines the directions for developing pricing strategies.

Price growth in the UK’s fast food industry accelerated in April and May 2023
According to Meaningful Vision Price Intelligence reports, in the first quarter of 2023 price growth in the food service industry was lower than food inflation. We note that the growth rate stood at 15% and 19% respectively. However, as of May 2023, this discrepancy had nearly diminished. Based on the data from the Office for National Statistics, food prices in May continued to grow at the same rate at around 18.4%. The prices of meals and beverages in fast food and coffee shops speed up reaching the same 18%.

Which products have experienced the highest price increases and where?
The price increases were disparate across different categories: higher-priced dishes witnessed a smaller percentage increase, whereas lower-priced ones experienced larger increases. For instance, within the price range above £15, the increase was merely 12%, whereas for dishes costing less than £5, the price surged by 20% or even higher. In absolute terms, this implies that, on average, the price of each dish increased by 50 pence. However, the more expensive products saw an increase of over £1.

The most significant price increases have been seen among the various food categories which were relatively inexpensive: extras, breakfast items, sides, and snacks. On the other hand, the main categories, like burgers, sandwiches, various meal/combo offers, and pizza, experienced smaller price increases. This pricing trend likely prompted consumers to reduce the number of items in their orders and forego less essential options. As each specific item faced a notable price hike, several chains have reported a decrease in the average check size due to the reduction in order quantities.

An interesting observation is that the price increase for food delivery surpassed that of dining in or takeout by 4 percentage points for the same restaurants. Considering the initial price disparity of around 20%, this even greater increase in prices renders delivery less affordable for low-income groups while making takeaway options more appealing.

How do restaurant chains retain customers amidst price increases?
According to Meaningful Vision traffic intelligence, in 2023, foot traffic in foodservice establishments continues to grow, indicating that market operators are successfully coping with rising prices and continue to attract and retain customers. How do they achieve this?

Market operators employ various strategies to cope with rising prices and retain customers. Some of the approaches adopted include:

  1. Menu Optimization
  2. Value Proposition
  3. Weighted Pricing Policy
  4. Cost Management
  5. Customer Experience
  6. Innovation and Differentiation
  7. Marketing and Communication

Most chains raised prices for specific items only, rather than applying increases across their entire menu. Insights from Meaningful Vision Pricing Intelligence reveal that over half of the menu items experienced price hikes exceeding 15%. Conversely, only one-fifth of the items encountered price increases of less than 5%.  Operators make efforts to reduce both the actual price increase and the negative effect of this increase on consumers. This primarily involves working with a variety of tactics such as, eliminating expensive menu items, replacing them with cheaper alternatives, or introducing more affordable new items.

Chains also focus on providing value to customers through promotional campaigns, announcing special offers and price reductions on specific items for a limited time, and trying to incentivise loyal customers through mobile apps.  By offering attractive deals and discounts, they make their establishments more appealing, even in the face of rising prices.

Another approach to manage pricing and profitability is regional pricing differentiation, as discussed in our previous blog. With this policy, prices in regions are set based on income data of the target audience. A pricing strategy which takes into consideration the gap between key competitors is the most efficient way to keep customers.

Closely monitoring and managing operational costs, including ingredients, labor, and overheads, affords greater control over expenses and mitigates against the impact of rising prices.

Other approaches focus on the expectations of consumers, such as customer experience, providing excellent service, or the quality of food and beverages. These efforts all aim to minimize the influence of price as a determining factor in consumer choices, or at least, to reduce its impact.

Chains can also continuously innovate and differentiate their offerings in an effort to stand out from competitors. This can include introducing new menu items, incorporating unique flavors or ingredients, or implementing innovative technologies for ordering and delivery.

Effective marketing campaigns and communication strategies are another key to success, and are employed to showcase the value, quality, and the unique aspects of their establishments. By highlighting their strengths and staying engaged with customers through various channels, they both maintain a strong presence, and attract new patrons.

Overall, market operators employ a combination of these strategies, tailored to their specific circumstances, to successfully cope with rising prices and continue to attract and retain their customers.

Unveiling persistent trends in Food Service Industry
The same trends that existed before the COVID-19 era continue in the UK market. For example, there is a high demand for healthier food and natural ingredients, as well as a desire for social interaction and unique experiences, and for creating special atmospheres that cannot be replicated elsewhere. Restaurant operators study the interests and behavior of their guests and customers and use this data to mitigate the impact of rising prices. Ultimately, this contributes to increasing consumer satisfaction and is a vital condition for business development in this industry.

Meaningful Vision will help you understand the pricing policies of your competitors and assist in building your successful strategy during these turbulent times. Follow our page to learn how.

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