A question on the minds of restaurant operators as inflation holds to four-decade highs, is where the ceiling might be. Is there a tipping point? Revenue Management Solutions analyzed in-store price increases by percentages, year-over-year (Q2 2021 versus Q2 2022) across 25,000 quick-service locations in the U.S., comprising of eight brands primarily in the chicken, burger, and Tex-Mex/Mexican segments, to see if it could find one.

With overall menu prices up 8 percent in August over the past year (7.2 percent for counter-serves), RMS was looking for if—or at what percentage—price increases had a diminishing effect, ultimately hurting traffic and negating some/all of the additional net sales recorded in recent months thanks, in large part, to higher prices.

And a clear point emerged. Mark Kuperman, chief operating officer at RMS, says net sales hit the highest threshold at about 13 percent. Beyond, traffic was so negatively impacted by the implemented price increase that net sales began to decline. Interestingly, throughout the restaurants included, the largest share of locations increased prices by an average of 9–10 percent.

All told, as a reaction, should quick-service restaurants scramble for a pricing round? “Not necessarily,” Kuperman says. “Factors such as customer type, location, price by item, magnitude and timing of recent pricing rounds all weigh into the price sensitivity equation. Traffic declines start at about 6 percent indicating brands may lose customers before hitting the sweet spot of 13 percent. The key is a careful analysis by location either through RMS or internally.”

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To Kuperman’s latter point, there aren’t many brands left not taking price. Necessity has evolved into strategy. “Average check analysis, customer type, location, price by item, common ‘bundles,’ magnitude, and timing of recent pricing rounds,” he says of the data operators should deploy in doing so. “For example, on bundles, if a brand takes price on items frequently bought together [think coffee, breakfast sandwich and a side], the customer is likely to notice the total check increase even if each item had a relatively small incremental price increase. On timing/magnitude, if a brand didn’t take price throughout lockdown, for instance, but now takes a 9 percent increase, the customer will notice, even if the 9 increase falls into the ‘acceptable’ window noted in the analysis.”

While RMS was able to uncover a tipping point, it doesn’t exactly paint a picture of what’s coming next. There’s been a clear and evident value push among chains of late as they work to keep the lower-income consumer engaged. And much of it has flowed through rewards and loyalty, with deals being offered in exchange for app signups and the continual data tradeoff. Deals such as Burger King’s June free onion rings with $1 purchase, available for Royal Perks members. Likewise, McDonald’s on September 18 touted a free Double Cheeseburger with $1 purchase on its app.

Arby’s recently launched a 2 for $7 Everyday Value menu, suggesting the bar on these value bundles could climb as price gets redefined.

Either way, it’s hard to say just how much higher this will go. “This is difficult to predict,” Kuperman says. “Some brands have still pricing opportunities beyond the 13 percent, while others already have limited opportunities even in the higher single-digits. What we can say, based on our analysis of observations across the industry, is that if year-over-year price increases beyond 13 percent, traffic is so negatively impacted that additional net sales begin to decline. We saw a significant drop in performance with price increases of more than 15 percent. Net sales were up 2.9 percent in the ‘more than 15 percent’ category, but traffic declined by 10.2 percent.”

Kuperman believes quick-serves are preparing for a new value era. More than just what channel it comes through as well, but also how it’s packaged. “In our observations, brands are looking at ‘abundant value’ items such as value bundles. They are also looking at price-pointing a la carte options, although at higher prices than we have seen in the past—we don’t think we’ll ever see 59-cent cheeseburgers again, for example,” he says. “Many brands are being creative with what they put on price-pointed a la carte menus, meaning they are creating new menu items specifically for this purpose using ingredients/labor that are more profitable than simply lowering the price of existing core menu items.”

Consumer surveys suggest diners are adjusting habits to inflation. Per Bluedot data, 91 percent of respondents said they’ve recognized pricing increases at restaurants and 73 percent said they’re tapping value menus more often in kind. Half said they were cutting back on visits to sit-down restaurants, while 47 percent said the same of coffee concepts, and 43 percent of fast casual. The number was 46 percent for fast food. Another 37 percent noted they were ordering less expensive items and 32 percent were simply ordering fewer of them.

Yet broadly, the industry’s net sales in August, according to RMS, was 5.2 percent, year-over-year, even as traffic declined 4.4 percent. Check was 10.1 percent higher in August.

Black Box Intelligence found similar baselines, with same-store sales up 5.3 percent last month (the strongest figure since March) alongside a traffic dip of 1.9 percent—the sixth consecutive month in the red.

Rewards Network data showed restaurant sales industrywide were up 17 percent in August compared to 2019. Again, a result largely driven by the fact average ticket was 26 percent higher. Traffic was 7 percent under.