Narrowing price gap could give fast-casual an edge over fast-food—analyst
Simon-Kucher partners advise fast-food should re-establish value to the customer.
The narrowing price gap between fast-food and fast-casual players could give fast-casual an edge if they effectively understand critical occasions and price points, said Mitchell Taylor, Partner at Simon-Kucher.
This comes as reports of increasing prices in fast food lead consumers to control their discretionary spending.
Mitchell will be discussing pricing strategies at the upcoming QSR Media Conference & Awards 2024 on 23 September at the Hilton Sydney Hotel in Sydney, Australia. Ahead of the conference, Mitchell shares some of his thoughts on the current developments in the QSR industry.
What are the key trends and developments currently shaping the quick-service restaurant industry in Australia?
We’ve just left a golden period for QSR, where demand pushed restaurant operations to capacity and prices were inelastic enough to offset cost increases. Now the trend is a laser focus on driving customers back, with a deep understanding of purchase occasions and adjusting value propositions to suit the new norm. Brands currently winning in the space are pushing boundaries on digital engagement especially, seeking to interact with customers outside of the meal occasion. Smart value repositioning is also a winning strategy, though this doesn’t mean over-promoting or discounting. More so being aware of changing willingness-to-pay at key occasions and adapting offerings accordingly.
In what ways have you noticed technology influenced the industry?
Advancements in back-end technology have enabled QSRs to become more creative and targeted in their customer campaigns. A few years ago customer-specific messaging and offers were at the forefront, now we’re evolving to incorporate AI into CRM tech and customer strategies, bringing dynamic and fast prompts to customers to drive frequency and spending.
What do you see as the major challenges and opportunities for the quick-service restaurant industry over the next five years?
Most problematically, the gap between traditional fast-food and fast-casual is now so slight it’s causing customers to wonder why they shouldn’t pay a small amount extra for what they perceive to be significant extra value. This opens a door for fast-casual players to opportunistically grow their share by attracting traditional fast-food customers if they understand critical occasions and price points effectively. Inversely, traditional fast-food brands need to re-establish value with customers to avoid further slippage. They need to revisit their core and what has previously made them famous, adapting where necessary and differentiating from outdated tactics.
What strategies do you recommend QSR operators adopt to enhance value, and effectively attract and retain customers?
Here are three key principles to incorporate into a QSR strategy to enhance value. 1. Really understand your customer segments and occasions, building your offer to cater to these profit pools. 2. Customer lifetime value is the goal, not transaction level margin. Securing more frequency from a customer is more important than maximising an individual sale. 3. Value is not discounting. Sure you’ll drive demand when you discount, but never in the long term. Brands following these strategies mostly end with confused customers and poor P&Ls.
How crucial is innovation for maintaining competitiveness in the QSR industry?
It is absolutely critical. The brands winning right now have not achieved this through accident, but rather through specific strategies for innovation and advancement. This can be through digital integration, customer experience, new menu architectures, menu expansion, etc. We’re in a period of economic slowdown and increased competition. Brands need to work hard to retain customers or grow their share.
