With minimum wage changes effective each January, operators might be tempted to respond by raising menu prices. A recent study by Intellaprice, a Boston-based pricing advisory firm, found that out of 11 fast casual chains surveyed in 13 markets, a handful increased price, though the majority held them flat.
According to Leslie Kerr, President of Intellaprice, the decision to change or maintain price was typically consistent across all markets for each chain surveyed, with few exceptions. “We found that there’s not always a correlation between higher menu prices and wage changes, so this research shows menu price increases aren’t the only way operators are dealing with labor cost increases. Many chains are working to drive sales in other ways as they face rising payroll costs.”
Operators that increased prices across most markets include Chipotle, Panda Express, Panera Bread, and Shake Shack
Those that held prices steady in all markets studied include Jimmy John’s, Moe’s Southwest Grill, Noodles World Kitchen, Smashburger, and Which Wich
Exceptions to these patterns are Five Guys and Sweetgreen, whose prices were flat in most markets, but were up in one or two markets that Intellaprice surveyed
“The price changes we see are generally moderate,” Kerr says. “Items changed by anywhere from a few cents to 50 cents. Generally, when we see a higher dollar increase, it’s on a $12 item, so you’re talking about a 4 percent increase. And higher percent increases typically correspond to lower-priced items, like a $.50 add-on that’s now priced at $.55, or 10 percent higher than before.”
Increases did not occur across the menu board, Kerr notes. “Operators who increased price did not do so for every single item on the menu. It was on a portion of items that was as low as a quarter at one restaurant concept, or as high as two-thirds of items at another. We commonly see price changes staggered across items or categories at different points during the year, and this feels a bit more guest-friendly. There are many factors restaurants consider when implementing a price change, so this is just part of the analysis that goes into pricing decisions.”
Kerr added that minimum wage is not the only driver of price increases and that price changes are likely to occur throughout the year. “There is always some rationale for price increases, whether it’s food cost, rent, labor, you name it,” she says. “It’s a constant struggle to improve profit performance, and operators use other marketing levers to meet profit targets. Price is just one of these, and that’s why not all brands in our study used that lever at this time.”
Intellaprice’s study covers over 125 fast casual restaurants and over 1,200 items. Data was collected in mid-December, 2018 and again in mid-January to assess any changes that accompanied wage increases.