We know that consumers are willing to shell out a little more for meals at fast-casual restaurants than at fast-food restaurants. Fast casual’s food-and-beverage quality positioning drives this; entrées at fast-casual concepts often are customizable and made to order, and operators frequently tout their use of “all-natural” ingredients, never-frozen beef, scratch-made sides and desserts, etc.
Research from Technomic’s Consumer Brand Metrics program reveals that consumers rate food and beverage quality above all other attributes when they’re deciding on a restaurant concept to visit—and whether to return to that concept. So it’s no surprise that they’re willing to pay more at those limited-service restaurants they believe to have premium food and beverage offerings.
But how much more? At what point do consumers begin to scoff at the price of a fast-casual lunch? Conversely, as operators look to bundled-meal deals to spur traffic and help carve out market share, what are fast casual’s “floor” prices—the prices below which consumers think food quality is negatively affected?
Technomic’s 2013 Value & Pricing Consumer Trend Report addresses these operator concerns. Using the Van Westendorp Price Sensitivity model, Technomic asked consumers to identify optimal price ranges for breakfast, lunch and dinner (each including an entrée, a side and a beverage) at restaurants in four segments: fast food, fast casual, family style and casual dining.
Four price points were identified for each segment: a low price (the price at which consumers believe food quality suffers), an optimal price (a price consumers believe to be a bargain), an indifference price (a price at which consumers believe the product is becoming expensive, but not prohibitively so) and a high price (a deal-breaking price).
Among the report’s noteworthy findings for fast-casual restaurants:
- At breakfast, fast-casual restaurants have significantly more wiggle room on pricing than fast-food restaurants do. Consumers’ optimal fast-casual breakfast price is $6.01; the indifference price is $6.50—a difference of 49 cents. By contrast, fast-food restaurants’ optimal and indifference breakfast prices are $4.50 and $4.82, respectively—a range of only 32 cents.
- $7 to $7.60 is consumers’ pricing sweet spot for a fast-casual lunch. For a fast-food lunch, the range between optimal and indifference prices is essentially the same, from $5.01 to $5.63. Not surprisingly, given the higher overall price paid for a fast-casual lunch, consumers reach their deal-breaking lunch price faster at fast-casual restaurants (where the lunch “high price” of $10.07 represents a 32.5 percent premium over the indifference price) than at fast-food restaurants (high price of $7.84, premium of 39.2 percent over the indifference price).
- Consumers consider $8.54 their optimal price for a fast-casual dinner. The dinner price that consumers consider a bargain at fast-casual concepts is only 14 cents lower than the dinner price they deem excessively high ($8.68) at fast-food restaurants. (Consumers identified $5.99 as their optimal fast-food dinner price.) Moreover, consumers’ ideal fast-casual dinner price is higher than their ideal family-style dinner price. While consumers consider a fast-casual dinner a bargain at $8.54, their bargain price for dinner at a full-service, family-style concept is $7.86—suggesting that consumers may find fast-casual restaurants’ dinner fare and/or speedy service style more attractive than what family-style concepts offer in the evening. Dinner represents a valuable opportunity for fast-casual restaurants to differentiate themselves from competitors in multiple segments by meeting consumers’ higher expectations.
There are myriad ways to slice and dice the pricing data, but they all lead to the conclusion that fast-casual restaurants do indeed have more pricing flexibility than fast-food restaurants do. In addition, the significant overlaps we see in consumer-approved prices for fast-casual and family-style restaurants indicates that the fast-casual segment has succeeded in making the case that its food and beverage offerings justify the kinds of prices previously seen only in full-service establishments. For the hottest segment in the restaurant industry, encouraging numbers keep rolling in.