Chick-fil-A wins battle for wary restaurant consumers

The state of restaurants is a messy picture. The Wall Street Journal, noting that foodservice accounted for more than 19 percent of all retail leases last year, called it the “unlikely new real estate darling” thanks to millennials spending more on out-of-home dining. According to the National Restaurant Association, the foodservice industry was projected to hit $1 trillion in sales by 2024 — a figure it has never hit before as it continues to add 200,000 jobs to 15.7 million.

And yet listed brands with positive transactions are outliers. As an industry, according to Revenue Management Solutions, fast food traffic fell 2.1 percent year-over-year in May, down from April when it fell 1.6 percent. Breakfast traffic fell by 5.6 percent and lunch by 3.5 percent (dinner was up 0.6 percent).

Simply put, there is no concrete consensus in what appears to be a kind of zero-sum dynamic. In many cases, restaurants grow at the top line due to price, but transactions do not increase at the same time. Customers seem unwilling to stop dining in restaurants, but the perception is leaning more towards luxury than everyday habit.

According to RMS, May net sales were positive at 1.9 percent, while the average price rose 3 percent year-on-year.

In a Lightspeed survey of more than 7,500 consumers, 51 percent said they would continue to eat out at the same rate or eat out more in the next six months. However, seven in ten reported higher meal prices and four in ten noticed their favorite dishes becoming smaller.

With 81 percent of respondents dining out at least once a month, and 38 percent dining out once a week or more, there’s a race to find value, with 43 percent saying they look for coupon deals, 39 percent opting for value meals and 36 percent taking full advantage of happy hour specials.

William Blair, in his 2024 State of the Consumer report, called this landscape the “consumer bifurcation.” Or a resilient dining option balanced by an increasingly soft dining option on the lower-income side.

That latter cohort, the firm said, is starting to fall behind after a period of leveling off in the post-pandemic years. They are being buffeted by a growing number of headwinds, including the resumption of student loan payments, higher interest rates, a lack of affordable housing and depleted savings. “The most pernicious headwind, however, is increasingly still high inflation in the face of slowing wages and thus slowing real income growth,” said William Blair. Meanwhile, the middle- and upper-income guests are holding their ground.

And we’re in for some fierce backlash in the 2024 presidential election.

According to William Blair, retail sales excluding gasoline and automobiles have slowed sequentially by an average of 0.7 percent over five election cycles since 1996, compared with the average annual growth rate heading into the presidential election season. The impact has been most pronounced in December, the peak of the holiday sales season, with retail sales slowing sequentially by an average of 1.8 percent, while October and November fell by an average of 0.4 percent, before turning slightly positive in January with an average acceleration of 0.4 percent.

By category, the company added that, excluding gasoline and auto, only e-commerce and grocery maintained growth above their respective 12-month averages, with grocery likely due to the defensive nature of the space and e-commerce thanks to the long-term secular trend of continued migration online. All other segments slowed to some capacity, though restaurants (down 0.4 percent sequentially) and general merchandise stores (negative 0.6 percent) were better insulated than most.

What’s also true for restaurants is that election cycles have historically negatively impacted brands that rely heavily on advertising, as they push back to avoid being smothered in what promises to be record levels of political ad spending this year, via more channels than ever.

Customer satisfaction on the agenda

Following similar trends, this year’s American Customer Satisfaction Index Restaurant and Food Delivery Study revealed complex themes. While satisfaction with fast-food restaurants rose 1 percent to 79 (out of 100), and 4 percent for full-serves to 84, households earning less than $75,000 per year noted fewer restaurant visits due to rising prices.

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“Both full-service and fast-food restaurant customers skew slightly more toward higher income levels and college graduates,” Forrest Morgeson, associate professor of marketing at Michigan State University and director of research emeritus at the ACSI, said in a statement. “Customers are being forced to make choices between groceries and restaurants, with full-service restaurant inflation about twice that of groceries over the past year, and fast-food and fast-casual restaurant prices three times as high like that of groceries. Because customers view dining out as a luxury, restaurants that can differentiate themselves in terms of quality and value will have a competitive advantage.”

But there was one stable point: Chick-fil-A had topped ACSI’s list for 10 years in a row.

Because Chick-fil-A is a private company, it is a brand that does not share traffic figures. However, it seems safe to assume that the brand has no trouble generating transactions. The brand reached a record $21.6 billion in system revenue in 2023 (up from $18.815 billion and $16.674 billion in the previous two years, respectively). Only three restaurant chains in America crossed the $20 billion mark in 2023: McDonald’s ($53.1 billion), Starbucks ($28.7 billion), and Chick-fil-A.

This was despite Chick-fil-A having a total of 2,552 domestic locations at the end of the year, compared to McDonald’s 13,457 and Starbucks 16,346. The key dividing line was average unit volume. No restaurant chain in the top 50 most profitable brands in the U.S. reported as high as Chick-fil-A’s $7.45 million. Cain’s was next at $5.69 million. Chick-fil-A’s drive-thrus brought in $9.374 million. And all this despite being open six days a week.

KFC ranked second in the survey, even in light of the overall challenges in the US market. KFC’s domestic figures fell 7 percent in the first quarter. It was the first negative result since mid-2022, when the brand walked away from the launch of its chicken sandwich, although figures were flat in the last two quarters of fiscal 2023. Yum! CEO David Gibbs attributed the first-quarter downturn to winter weather in the first part of the quarter and “chicken value promotions” from competitors.

Again, monthly visits to KFC’s domestic stores trended negatively toward 2024, reaching low single digits, with declines accelerating in the first few months of the year, according to data from Placer.ai. Year-over-year traffic fell 7.5 percent in January and 6.2 percent in February, before plummeting 12.2 percent in March.

Gibbs said KFC was working behind the scenes to “boldly reset the brand,” with details to be announced soon. Culver’s, Panera, Arby’s and Starbucks tied for fourth place.

As a category, most trends were relatively consistent from year to year. Order accuracy, mobile quality and mobile reliability have improved as technology appears to help reduce friction. In the study, mobile quality even exceeded that of full-service chains. Quick-serves also received high benchmarks for staff friendliness and food and drink quality (84), although they obviously outperformed the sit-down brands on these measures. “As noted for full-service restaurants, pressure on some consumers to reduce their discretionary spending will require restaurants to deliver an exceptional customer experience to maintain their loyalty,” the ACSI said. “Similar to full-service restaurants, fast-food respondents in the 2024 survey have slightly higher income levels and a slightly higher percentage of college graduates than last year, which is consistent with reports that lower-income consumers are eating out less often.”

Delivery in battle

For the first time, ACSI has measured the delivery industry. This came to 73, or significantly lower than full-service restaurants (84) and fast food (79).

As always, the perception of delivery came down to the occasion. Customers who use the channel generally know what they’re getting into and respond accordingly. For example, are they in a hurry? If so, chances are they value speed over quality and are happy with the cost. However, those who use delivery services out of necessity (such as health or not having a vehicle) were frustrated with the prices.

The full-service overview

Steak concepts usually do well on the ACSI index, and that was the case again when Texas Roadhouse and LongHorn finished at the top. Chili’s (up 4 percent) and IHOP (8 percent) made progress as they moved to value (3 for me in Chili’s case). Outback, last year’s leader, fell 4 percent.

The chart below shows material movement, with guests valuing the category’s ability to deliver experience in addition to improving value. “Providing a great customer experience will be even more important for consumers who feel pressured to cut back on discretionary spending. Respondents from full-service restaurants in this study have slightly higher income levels and higher graduation rates than in 2023, supporting reports that lower-income consumers are eating out less often at restaurants,” the ACSI said.

The ACSI Restaurant and Food Delivery Study 2024 was based on 14,604 completed surveys. Customers were randomly selected and contacted via email between April 2023 and March 2024 for the restaurant industry and between November 2023 and March 2024 for food delivery.