Rotisserie chicken chain St-Hubert is cutting prices across its menu, a move that suggests a possible inflection point for Canadian consumers worn down by the increasing cost of dining out.
The chain, headquartered in Quebec and with over 120 restaurants there and in Ontario and New Brunswick, dropped prices on 100 menu items, and says it would freeze prices on all of its main courses.
“It is a good time to be playing the price game and trying to take share,” said strategy consultant Mark Satov in an email to Yahoo Finance Canada. “When it seems like everyone else continues to drive price and people at all income levels are frustrated with how much prices keep going up, up, up, it is a good strategy to be a price player or position yourself as one.”
The chain’s press release makes it clear that consumers’ frustration with prices going up is its main motivator: the menu update is “aimed at helping customers navigate the current economic challenges,” says the release, which also name-checks “shrinkflation,” promising quantity and quality will not change.
“It’s important that all our customers feel like they’re getting real value for their money,” Richard Scofield, president of Groupe St-Hubert, said in the release.
Bruce Winder, a retail analyst, says rising prices have caused many consumers to increasingly think twice about dining out, a trend likely very apparent to certain sectors of the industry.
“I think that’s hurting the sit-down business, the in-restaurant dining business a little bit,” he said. “I think they’ve probably seen a significant volume drop in terms of the number of folks coming in, and they realize they have to sharpen their pencil to get them back into the restaurants again.”
Winder says he isn’t aware of other chains in the sit-down space making similar moves so far. But he adds the current economic context meant that for some businesses, “this space is going to be really tough.”
“They may have to close restaurants, they may have to change their business model to try to do more takeout, or even shrink their dining locations.”
The struggles aren’t unique to the sit-down space, with Canadian fast-food outlets competing for budget-conscious customers with value-menu discounts (mirroring value-menu price wars in the U.S.). Joshua Kobza, CEO of Restaurant Brands International, whose brands include Tim Hortons and Burger King, told investors “the environment has been tough” in an August earnings call.
Statistics Canada’s latest inflation figures, released Tuesday, were cooler than analysts had expected, but the government agency points out that “price levels remain elevated.” The Consumer Price Index (CPI) is up 12.7 per cent from September 2021. Over that same three-year period, CPI for food purchased from table-service restaurants rose 17.2 per cent. For fast-food restaurants, the rise since 2021 was 19.6 per cent.
That significant jump in prices is exacerbated by the question of tipping, Winder notes. “When you go to a fast-food joint, there really isn’t a tip, right?” he said. “No, you buy it, you pay the tax, you sit down.”
At a sit-down restaurant, “you feel obliged to give at least, you know, a 15 per cent tip,” he said. “And you can add on top of that, the recent tip culture, where a lot of restaurants are trying to push, you know, 18 or 20 per cent. You know, that’s something that crosses consumers’ minds.”
The restaurant industry is subject to a pattern similar to that being experienced by retail, Winder says, where consumers are gravitating either to high-end or discount.
“There’s been a significant polarization of incomes and equality, and that polarization has led to the middle class shrinking significantly,” he said. “And because of that, you’ve seen a shrinking of middle retail, if you will, and middle restaurants.”
In the face of this, a restaurant chain has a few options beyond St-Hubert’s move to lean into a cheaper menu without compromising its overall experience.
Going more upscale is potentially a more difficult strategy “because your brand’s already synonymous with the middle,” Winder says. Alternatively, he says, a restaurant could try to eliminate sit-down space and reinvent itself primarily as a take-out restaurant, reducing costs for labour, rent, fixtures. This was the route taken by Pizza Hut over a decade ago, Winder notes.
“They had all dine-in, everything was sit-down. Well, they’ve morphed now. There’s no sit-down. It’s all pick-up, and there isn’t much of a dining room in any Pizza Hut. Now, even just to sit down on stools, it’s mostly gone.
“That might be a forerunner for how some other restaurants have to change.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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