To grow customer engagement and offset the impact of rising food costs, supply chain disruption and inflation’s squeeze on discretionary spending, restaurants big and small are experimenting with their menus.
For many major chains, this means optimizing their offerings for off-premise channels like drive-thru, as well as delivery and pickup. Other restaurants are driving growth by entering new daypart subcategories, like dessert, to better align with diner trends.
Regardless of segment or size, practically every restaurant has been forced to raise their menu prices to protect their bottom lines, and the operators who are still rolling out new menu items are getting creative with their ingredients to ensure minimal cost burden.
This report explores key menu development trends, including:
How restaurants are designing their menus for drive-thru service
How chains like Chipotle and Starbucks are trying to hike menu prices without upsetting diners
Why McDonald’s may be testing the sale of Krispy Kreme doughnuts
Why Panera added toasted baguette sandwiches to its menu
These are just a few of the many trends shaping restaurant menus. We hope you enjoy this deep dive into today's landscape.
With drive-thru customers expecting faster speed of service, chains are honing in on what items work and don’t work to get orders completed quicker.
By: Julie Littman• Published Nov. 17, 2022
In June, Smokey Bones opened its first drive-thru. The full-service barbecue chain felt the channel was a natural extension of its growing focus on virtual brands and off-premise business, both of which have performed well with customers, CEO James O’Reilly said.
“We decided to have a traditional drive-thru — unlike other variants that we are seeing in the industry — because it has the least amount of friction in the guest experience,” O’Reilly said. For example, a restaurant with a pickup-only window requires customers to order online or via a mobile phone and pay ahead of time, adding potential friction points for diners.
But as a long-time full-service restaurant, Smokey Bones had to adapt its menu to ensure that customers could be served in minutes. Other chains, such as Atomic Wings and Hawaiian Bros, adapted their menus and food prep to make them more compatible with drive-thru operations. Even long-time drive-thru chains continue to update their menus. For example, McDonald’s trimmed complex items, like its premium sandwiches, to cut down drive-thru times in 2019.
Operators adding a drive-thru cannot expect all of their menu items to translate well to the service, and innovation will be necessary, experts said. If a menu is complex or allows for a lot of customization, that is a challenge that needs to be considered, said Shelley Harris, former interim chief brand officer at Schlotzsky's and current restaurant category president at Focus Brands. Drive-thrus make up about 85% of the sandwich chain’s system.
Operators also have to understand the cycle time on making products for drive-thru service. With a traditional drive-thru, there are opportunities to pre-cook or pre-stage items. If a restaurant doesn’t have the ability to do that, it’s going to impede speed of service, Harris said. “The general expectation from a consumer who uses the drive-thru is ‘I have an expectation of how long I'm willing to sit in this drive thru.’”
Smokey Bones’ express menu was built with food that can be delivered within a five-minute service time. If consumers want other items on the menu, such as a full rack of ribs, the chain offers a full curbside menu where they can place orders at the drive-thru and pay and wait in designated parking spots until delivery, O’Reilly said.
Hawaiian Bros — which has 35 stores, most of which have drive-thrus — had to become more technical in how it figured out food preparation, co-founder Cameron McNie said. The chain’s menu consists of lunch plates with two scoops of rice, one scoop of macaroni salad and another scoop of protein. It also used historical order sales to know when the kitchen would need fresh batches of various ingredients to ensure that everything served is still fresh, he said.
Having staff members take orders via tablets outside the restaurant also helps maintain a balance of how many orders can be completed in the kitchen at a time.
For businesses that also offer dine-in service, operators should understand the difference between the two channels. Dine-in customers want to sit in the dining room and talk with people, and their food doesn’t need to be served immediately. This is why having separate makelines for drive-thru and dine-in services are important to maintaining both parts of the business, McNie said.
For Hawaiian Bros, that meant renovating its existing restaurants, including adding tens of thousands of dollars worth of equipment, sometimes tearing down walls and rearranging layouts, McNie said.
Atomic Wings did a lot of research for its forthcoming drive-thru launch as well as testing to reduce cook times to an acceptable speed of service for drive-thrus, CEO Zak Omar said. That meant putting in the right kitchen equipment, such as steamers. Its biggest competitors don’t have drive-thrus because it takes about 12 minutes to cook wings, Omar said. Atomic Wings has focused on getting that speed down to about three minutes.
“We believe we can play really well in this space and our average unit volume should be significantly higher with drive-thrus,” Omar said.
Article top image credit: Permission granted by Smokey Bones
How 6 restaurant giants are hiking menu prices
Brands like Chipotle, McDonald’s and Starbucks are walking a tightrope — charge enough to protect the bottom line without alienating customers.
By: Emma Liem Beckett and Julie Littman• Published Nov. 15, 2022
Prices have been climbing on restaurant menu boards for much of the year to offset spikes in food and labor costs, but that doesn’t mean diners are used to the strain on their wallets.
As a result, major restaurant chains are walking a tightrope — charge enough to protect the bottom line without alienating customers and ceding traffic to competitors or grocers.
Input cost inflation ran well ahead of menu pricing, Paul Westra, managing director of restaurants investment research at Capital One, said. Average menu price hikes are around 6% over the last 18 months, but restaurants need to aim for an 11% increase to protect profits, he said. This discrepancy has impacted store-level profitability with profit declines of over 20%, which echo drops seen during the Great Recession in 2008, Westra said.
“The good news is the consumer held up relatively well and is continuing to hold up relatively well,” Westra said. “And the great news is we’re seeing inflation largely normalize.”
The general consensus on Wall Street is that most, if not all, of the margin and profit losses restaurants have seen in the last 12 to 18 months will be recovered, Westra said, adding that most predict a near 20% increase in restaurant profitability over the next 12 to 18 months. But menu pricing is going to come down at a slower pace than cost inflation, he said. If that dynamic continues into a consumer recessionary period, it could be a risk.
Matt Goodman, senior equity research analyst at M Science, echoed this concern.
“On one hand, food-at-home pricing is rising more quickly than food-away-from-home, increasing the relative value of the restaurant-driven meal,” he wrote in an email to Restaurant Dive. “That said, if the consumer budget is further stretched, the absolute cost of grocery-driven meals is still generally lower (all else equal) than a meal from a restaurant, even a value-driven QSR like McDonald’s.”
This dynamic could limit the ability of QSRs to attract diners in great numbers, he said. The fast casual category is also at risk.
“Since gas prices have drifted lower, we have seen some dollar share flow back towards more-expensive dining categories. Nonetheless, we think if Fast Casual (including Chipotle) gets too aggressive on price … a potential loss of customers to Quick Service is certainly possible,” Goodman said.
Ultimately, however, restaurants across categories are still benefiting from strong diner demand. M Science data shows QSR chains have seen the highest average check increases this year compared to 2019 at 27% compared to fast casual (26%) and casual (23% to 24%), he said.
To learn how major chains are approaching menu pricing strategy, Restaurant Dive examined comments from Chipotle, Domino’s, McDonald’s, Shake Shack, Starbucks and Wendy’s during their latest earnings call.
In October, Chipotle raised menu prices between 2% and 3% in roughly 700 restaurants to “address pockets of outsized wage inflation,” Chipotle CFO Jack Hartung said during the chain’s Q3 earnings call. Overall, this translated to a companywide impact of 0.5%
“The benefit of menu price increases offset elevated costs across the board, most notably in dairy, packaging and tortillas. In Q4, we expect our cost of sales to remain at about the same level, as the benefit from the menu price increases will be offset by higher beef, chicken, dairy and tortillas,” Hartung said.
Compared to Q3 2020, Chipotle’s menu prices are up over 20%, CEO Brian Niccol said on the call. But he claims the Mexican chain’s prices are still between 10% and 30% lower than what Chipotle’s competitors charge. Consumer sentiment hasn’t been negatively affected either, he said.
“When you look into the business, we're not seeing people all of a sudden not buying guacamole or also changing what they typically add to their order or switching between proteins. Things have stayed pretty consistent,” Niccol said.
For Q4, Chipotle expects leverage from increased menu prices to help ease labor costs.
The average price increase across the pizza chain’s U.S. system was 5.4% during the third quarter, Domino’s CFO Sandeep Reddy said during the chain’s Q3 earnings call. The company expects price hikes to reach about 7% in Q4, a bump resulting from increasing the chain’s carryout Mix & Match deal from $5.99 to $6.99 on Oct. 17.
“The delivery fees and the menu prices are both franchisees' decision on what they make,” Domino’s CEO Russell Weiner. “What we do there, though, is we provide them with what the competitive context is at a local level.”
Domino’s menu pricing strategy hinges on relative QSR value regardless of inflationary pressure and food cost changes, Weiner said.
“The philosophy on how we look at pricing in the company… [has] been happening over the last decade or more,” he said. “We would look at our input costs and essentially what that does in terms of long-term store profitability for the franchisees and our own corporate stores. But then we also look at the relative consumer price points and competition in the market.”
Despite this increase, McDonald’s hasn’t seen “significant trade down” between its menu items, CEO Chris Kempczinski said during the chain’s Q3 investor call. The company is, however, reaping the benefits of some diners choosing to buy from fast food chains rather than pricier restaurant categories as discretionary spending budgets become slimmer.
The company is confident in its near-term performance despite expected economic challenges, including a predicted “mild to moderate recession in the U.S.” next year, Kempczinski said.
McDonald’s will overcome these obstacles through increased interest from low-income diners and its value-oriented digital and delivery offerings – even without its Dollar Menu, which helped the company weather the Great Recession in 2008 and 2009, Kempczinski said.
Shake Shack boosted its menu prices between 2% and 10% across price tiers in October to offset inflation, and the company expects to maintain a high single-digit price increase in 2023. Previously, the chain hiked its menu prices by 3.5% in March, CFO Katie Fogertey said during the chain’s Q3 earnings call.
“Even with this price increase, a Shackburger, fries and beverage is on average under $14, well within and often priced below the cost of other lunch or dinner options nearby. Our value perception among guests remains unchanged, and we continue to see strong demand for our premium LTOs,” Fogertey said.
This menu price bump, coupled with traffic growth at Shake Shack’s urban stores, contributed to a same-store sales increase of 8.3% year-over-year in October 2022.
“This fourth quarter we will have the benefit of nearly a full quarter of new menu pricing to help address some inflationary pressures we are facing. We are planning for high single-digit inflation in food and paper costs through the rest of the year, led by continued high inflation in dairy, accelerating cost pressures in fryer oil, fries and ketchup and low double-digit inflation in paper and packaging,” Fogertey said.
Shake Shack customers are also trading up and adjusting back to pre-pandemic spending habits, she said.
“We're seeing people add on more to their check. We're seeing great strength in cold beverage. All these things leave us encouraged that our guests really [do] value our elevated premium and differentiated approach to menu innovation,” Fogertey said.
Starbucks has raised prices about 6% over the past year, but the coffee giant hasn’t seen diner interest recede, interim CEO Howard Schultz said during the chain’s Q4 earnings call.
“Their loyalty to Starbucks has been quite significant and predictable,” Schultz said. Still, he added the company is “certainly not going to try and raise prices during this time.”
The company’s customization is driving accretive ticket growth despite higher prices, Schultz said.
“In North America overall, the combination of customer shifts toward premium hot and cold beverages, increased customization, strategic decisions around beverage, food and modifier pricing and an 18% increase in food sales drove net revenues up 15% year-over-year to a record $6.1 billion,” he said.
The company is confident, however, that it won’t be threatened by competitor value.
“As far as competitive pressure is concerned, as I look at NPD Crest data, the deal levels that are happening in the category are not elevated versus what we have seen previously,” CFO Gunther Plosch said on the call. “So we're not seeing any strong signs that there are kind of big value wars to come.”
Still, Wendy’s is using third-party pricing specialists to guide its strategy — and franchisee strategy —and is tweaking its analytics and marketing to push more diners to trade up, Plosch said.
“At the end of the day, the proof is in the pudding, right? We have yet again in this quarter held our dollar and traffic share in the category,” Plosch said.
Penegor believes Wendy’s current stability will hold in the near term.
“The healthier consumers will continue to come out. We’ll start to see those frequency gains and get folks from food at home to food away from home,” Penegor said
Article top image credit: yaoinlove via Getty Images
Panera expands sandwich line with toasted baguettes
By: Julie Littman• Published Jan. 6, 2023
Panera will add three toasted baguette sandwiches, starting at $9.99, to its menu beginning Jan. 12, the company announced Friday. MyPanera Rewards members will receive early access to the menu items on Jan. 11.
As part of the launch, Panera will release a code redeemable for free toasted baguette sandwiches between Jan. 17 and Jan. 22 if temperatures drop below 32 degrees in New York City, Boston, Denver, Washington, D.C., or Chicago.
This is the first time Panera has created sandwiches using its baguettes. The sandwiches build on the chain’s “warm and hearty” offerings, which target both lunch and dinner dayparts, the company wrote in an email to Restaurant Dive.
MORE IN THE MENU
Panera’s Toasted Baguettes
Release Date: Jan. 12 (Jan. 11 for MyPanera Rewards members)
Green Goddess Caprese Melt: Peppadew peppers, fresh mozzarella, grated parmesan, basil, arugala, green goddess dressing, garlic aioli and salt and pepper
Pepperoni Mozzarella Melt: pepperoni, mozzarella, fontina/mozzarella blend and market sauce
Smoky Buffalo Chicken Melt: smoked chicken, American cheese, red onions and Buffalo sauce
Other fast casual restaurants have been expanding their menus as well. Sweetgreen added its first dessert last year as part of its strategy to expand dayparts and grow its core customer base. Chipotle added quesadillas to its digital menu in 2021.
Panera said its toasted baguette sandwiches gives the chain an opportunity to provide a menu item that isn’t widely available in the U.S., which could capture incremental customers.
Sandwiches also remain the company’s top-selling category and the company said its 2022 chicken sandwich was its most successful launch to-date. The new line of sandwiches were developed using Panera’s strategy of leveraging iconic menu items, expanding across dayparts and reaching new customers, the company said.
In addition to expanding its menu, the company has been looking into different formats adapted for different markets. It opened its first updated urban store last year in New York City, as part of its strategy to expand into more densely populated areas. The company is targeting more nontraditional locations like hospitals and universities. Panera also opened its first digital-only restaurant in Chicago in June.
Article top image credit: Permission granted by Panera Bread
BTIG: Papa Johns’ value menu attracting new base of customers
By: Julie Littman• Published Dec. 22, 2022
Papa Johns’ $6.99 value platform, Papa Pairings, appears to be attracting customer attention, according to a BTIG report emailed to Restaurant Dive.
About 20% of surveyed Papa Johns’ customers claim they have ordered from the menu since its September launch, according to a BTIG survey of over 1,000 customers.
BTIG believes that this menu is attracting new customers with earnings less than $60,000 per year.
Papa Johns franchisees are finding the platform is mixing about 15% to 20%, according to BTIG. Papa Pairings, which has been offered for a limited time at select restaurants, allows customers to pick from items like Papadias, Chicken Poppers, medium one-topping pizzas and desserts for $6.99 each so long as the customer picks two or more items.
“We believe this platform will become a permanent menu fixture for Papa John’s that could help drive consistent traffic and check growth for the brand, mirroring the results at Domino’s for over a decade,” BTIG said.
Domino’s Mix and Match value platform typically results in a higher-than-average check since consumers typically order more than the required two items. This trend is starting to happen with Papa Pairings, according to BTIG.
A typical Papa Johns’ customer earns over $75,000, but more customers are selecting value offerings instead of using them as add-ons, according to BTIG. Premium items, such as Stuffed Crust and Shaq-A-Roni continue to be important to consumers, however, according to BTIG’s report.
New menu items have helped drive long-term growth for Papa Johns, with average unit volumes up 30% since 2019. For example, when Stuffed Crust was launched in 2020, it had a 25% sales mix. The addition of new flavors like Pepperoni Stuffed Crust have only helped. Forty percent of the customers surveyed by BTIG said they typically order this product. The newest additions, Papa Bites, launched this week at $4.99 each and will offer more menu diversity.
“We believe the diversity of the menu with new innovation should support these elevated volumes relative to pre-pandemic as Stuffed Crust, Papa Pairings, Papa Bowls, NY Style Pizza and a handful of other Papadias were not on the menu in 2019,” BTIG said.
Customers aren’t really phased by the 8% to 9% price increase Papa Johns implemented over the past year, according to BTIG. Of the 1,073 customers BTIG surveyed, about 4% said Papa Johns had a low value rating and 20% were neutral. The cohort of consumers that said pricing went up too much were lower-income and mostly lived in the South and Midwest. Households that didn’t mind the pricing change tended to be higher-income families of three or more people, according to BTIG.
Panera is testing milkshakes inspired by its bakery items in various markets in Texas, including Waxahachie, Waco, Killeen, Cedar Hill, Temple, Mansfield and Grand Prairie, the company wrote in an email to Restaurant Dive.
The three shakes, which are available for $5.79 each, come in The Kitchen Sink, Fudge Brownie Swirl and Strawberry Cheesecake Swirl flavors, which are inspired by a cookie, brownie and cake of the same respective names.
Panera, which may roll out these shakes nationwide during warmer seasons, has been adding permanent items to its menu for several years, including grain bowls in 2019 and flatbread pizzas in 2020.
The Kitchen Sink cookie and Signature Brownie sell more than 30,000 units a day, Panera said, so the corresponding shakes could attract heightened consumer interest. The shakes could also be a differentiator from other bakery cafe chains, like Corner Bakery, that don’t offer such items. During all of its product tests, Panera evaluates sales, the employee experience and customer feedback, the company wrote to Restaurant Dive in an email.
The fast casual chain is looking to expand its reach with customers. Earlier this month, it opened its first updated urban store format in New York City as part of its strategy to open units in more densely populated markets, shifting away from its suburban focus. Panera plans to open more non-traditional locations in airports and hospitals. Earlier this year, it updated its Ultimate Sip Club to include all self-serve drinks and revised its loyalty program to allow customers to choose their rewards. The chain also recently launched a new chicken sandwich.
Other chains have been innovating their menus as well this year. Earlier this month, Sweetgreen added a dessert category with the launch of its Crispy Rice Treat, and the chain is looking to add heartier dinner items and kids meals to its menu. Pizza Hut added Melts to its menu, while Del Taco added tortas and Papa Johns added Papa Bowls.
Article top image credit: Permission granted by Panera
The dessert, which costs $2.95, is made with gluten-free grains — organic brown rice, quinoa and puffed millet — butter and roasted sunflower seeds, and is sweetened with honey date caramel.
Entering the dessert category is part of Sweetgreen’s strategy to expand dayparts and occasions to grow its core customer base, CEO Jonathan Neman said during the company’s August earnings call.
Sweetgreen expects there to be plenty of white space for this category, stating that 45% of diners order dessert while eating at restaurants. The company, which developed the Crispy Rice Treat with the help of its first chef-in-residence Malcolm Livingston II, began testing dessert items in its test kitchen two years ago.
In addition to the after-dinner treat, Sweetgreen will be trying out additional foods during the fall including, heartier dinner items and kids meals in select markets, Neman said.
Menu innovation is key to the salad chain’s strategy for expanding customer reach, but it’s also piloting various rewards initiatives as it figures out the best way to build a loyalty program, which is expected to launch next year, according to the earnings call. In June, it tested Rewards and Challenges, a digital experience in its app and website to reward customers for meeting certain challenges. Earlier in the year, it debuted Sweetpass for a month to offer customers a $10 subscription to receive a $3 discount for meals purchased in January.
As part of its dessert launch, the company will host a “Free Dessert Friday” this week to offer customers a free Crispy Rice Treat with a minimum purchase of $9.95. The chain will also run a promotion from Nov. 28 to Dec. 4 for digital customers to purchase a Crispy Rice Treat for $1 with an order of at least $9.95.
Article top image credit: Permission granted by Sweetgreen
McDonald’s to sell Krispy Kreme doughnuts in Louisville
By: Emma Liem Beckett• Published Oct. 18, 2022
McDonald’s will sell Krispy Kreme donuts at nine restaurants in Louisville, Kentucky, and surrounding areas starting Oct. 26, the companies announced Tuesday. The companies didn’t disclose when the test will end.
The Golden Arches will offer Krispy Kreme’s Original Glazed Doughnut, Chocolate Iced Sprinkles Doughnut and Raspberry Filled Doughnut across all dayparts for in-restaurant and drive-thru service while supplies last.
Krispy Kreme will deliver fresh doughnuts daily to participating McDonald’s restaurants for the duration of the test, which McDonald’s will leverage to inform future menu and operations strategy, the company said.
By bolting Krispy Kreme products on to its menu, McDonald’s could bolster its breakfast business and protect morning customer traffic that might otherwise be lost to nearby KrispyKreme units. Though the doughnut chain’s store network is dwarfed by McDonald’s sprawling footprint, Krispy Kreme could eventually prove a strong morning daypart competitor.
Krispy Kreme is expanding via a hub-and-spoke growth model, wherein the chain’s production centers deliver doughnuts to local retailers and convenience stores. Earlier this year, the company announced it would build delivery-only units in the U.S to take advantage of this capacity.
Still, breakfast was McDonald’s strongest-performing daypart in Q2, CEO Chris Kempczinski said on the company’s earnings call in July. McDonald’s already offers four pastries, as part of its McCafe menu, though not a doughnut product. It brought back its cheese Danish as an LTO during the fall, and added Donut Sticks in 2019 as an LTO. Golden Arches customers can order Krispy Kreme doughnuts individually or in a pack of six during the test.
To grow customer engagement and offset the impact of rising food costs, restaurants are experimenting with their menus. For many major chains, this means optimizing their offerings for off-premise channels like drive-thru, while others drive growth by entering new daypart subcategories, like dessert.
included in this trendline
How 6 restaurant giants are hiking menu prices
BTIG: Papa Johns’ value menu attracting new base of customers
Panera expands sandwich line with toasted baguettes
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