Income Influences Patronage and Attitudes

October 18, 2012

High-income consumers not only use foodservice more often than lower-income consumers do, they also have a different set of demands.

Consumers’ household income—particularly as it relates to their disposable income—strongly impacts many areas of their life, including where they live, where and how they shop, their daily priorities and intrinsic motivations—essentially their overall lifestyle.

Wealth also influences how and why consumers use foodservice. High-income consumers are about twice as likely as lower-income consumers to use foodservice at least once a week, making them an important demographic for the industry. However, it would be remiss to not examine patronage and purchasing decisions among middle- and lower-income groups to determine how to build incremental sales with these consumers as well.

Technomic’s recent Influence of Income Consumer Trend Report polled consumers of all stripes, then broke them down into Working, Lower-Middle, Upper-Middle and Affluent income groups.

  • Working—Generally consumers who earn an annual household income of $34,999 or less. Those earning up to $44,999 were also included in this group if their household size was larger than two individuals. Those in high-cost areas such as major cities were also included in this group if they earned up to $54,999 and had an even larger household size of three or more individuals.
  • Lower Middle—Consumers who report an annual household income of roughly $45,000 to $74,999. Consumers with even lower income ranges, such as those earning $35,000–$44,999, were included in this group if they lived in a low cost-of-living area or if their households included just themselves or one other individual.
  • Upper Middle—Generally consumers who earn $85,000–$104,999 annually. Those in smaller households, or in lower cost of living areas such as rural, suburban or small city areas, were included in this group as long as they reported an income of at least $65,000–$84,999.
  • Affluent—Generally consumers who report an annual household income of roughly $125,000 or more. Consumers who live by themselves and earn $105,000–$124,999 were also included in this group, while households in this income bracket but with a larger household size or in higher cost of living areas fell into the Upper-Middle income group.

Foodservice Patronage

Affluence is tied to greater foodservice usage; nearly twice as many Affluent consumers as those in the Working group use foodservice more than once a week. Wealthier consumers also source a greater portion of their meals away from home than lower-income consumers, with the greatest gap at lunch. On average, more than two-fifths of Affluent consumers’ lunches, compared to just a third of Working consumers’ lunches, are purchased at restaurants.

Base: 2,000 consumers aged 18+
Source: The Influence of Income Consumer Trend Report

The fact that away from home lunch purchases vary so widely based on consumers’ level of affluence speaks to the importance consumers place on convenient foodservice options at lunch, and a preference to source lunch from restaurants regularly if they can afford to do so. Many lower-income consumers likely can’t afford to purchase food away from home for lunch as often as their higher-income counterparts, choosing to eat at home or bring meals from home more often. Operators may be able to increase incremental traffic and sales at lunch by varying their menus to offer options for consumers on a tight budget. This could be through options that provide greater value, such as combos, or items that are offered at absolute low price points, such as value meals. However, when doing so, operators will want to be sure that these items do not cause core customers to trade down from their usual, higher-priced offerings.

Takeout and delivery usage skews to lower-income consumers, while a significantly greater proportion of meals purchased by Affluent consumers are for dine-in. Consumers with a higher disposable income are also more likely to use technology such as a cell phones or smartphones to place their takeout and delivery orders.

Different Priorities

Low prices are the highest priority for Working and Lower-Middle income groups when choosing a limited-service restaurant for dine-in occasions, while Affluent consumers place greater importance on a convenient location. Low prices are also more important to lower-income groups than higher-income groups at full-service locations, as the chart illustrates.

Affluent consumers place a higher priority on convenience of location than any other income group, for both limited- and full-service restaurant occasions. This data suggests that lower-income consumers sometimes need to go out of their way for the low-cost items they seek, while higher-income consumers are willing and able to pay higher prices to visit a convenient location.

Base: 952 consumers aged 18+ who dine in at these locations
Source: The Influence of Income Consumer Trend Report

Consumers with different levels of affluence cope with time constraints in different ways; lower-income consumers are more willing to trade health for convenience, while higher-income consumers are more likely to multi-task during meals and eat on the go.

Slightly more Affluent than Working consumers say an appealing taste and the use of fresh ingredients are important for limited-service dine-in occasions, suggesting that, to some degree, lower-income consumers associate these qualities with higher prices. Lower-income consumers may assume to some extent that taste and freshness cost more, and as a result likely rate it lower because of their priority on low prices. Meanwhile, for full-service dine-in occasions, Affluent consumers emphasize taste and freshness, while lower-income consumers are more likely than higher-income consumers to place a high level of importance on menu variety.

Higher-income consumers are more likely to seek restaurant recommendations from friends and family; a third of Affluent consumers, compared to a fifth of Working consumers, say they often ask for such recommendations. Higher-income consumers are also significantly more likely than lower-income consumers to utilize computers and smartphones to research restaurant menus online. And twice as many Affluent than Working consumers say they often consult online review sites and blogs when choosing a restaurant.

Priorities do not always differ by income group. Two out of three consumers overall agree that order accuracy and food that tastes just as good as for dine-in are highly important for takeout and delivery occasions; the fact that there are few significant skews by income indicates that these are must-haves for takeout occasions regardless of consumers’ level of affluence.

A Change in Attitude

Just half of Affluent consumers, versus three-fifths of Working consumers, view eating out at full-service restaurants as a special treat. This indicates a significant difference between Affluent and Working consumers’ perceptions and motivations for dining at full-service restaurants. Working consumers have tighter budgets and do not visit full-service restaurants as frequently as Affluent consumers, which is likely why lower-income consumers view these occasions as special events.

Additionally, more than a quarter of Affluent consumers, compared to just a tenth of Working and Lower-Middle consumers, say they eat out at restaurants more frequently than they prepare food at home, confirming that Affluent consumers have a high reliance on and preference for restaurant meals.

Base: 898 (a special treat) and 934 (whenever I want to) consumers aged 18+; responses were randomly rotated
Respondents indicated their opinion on a scale of 1–6 where 6 = agree completely and 1 = disagree completely
Source: The Influence of Income Consumer Trend Report

Wealthy consumers also appear to use restaurants to a greater extent than lower-income consumers as a place to socialize. Seven out of 10 Upper-Middle income-group consumers, and just three-fifths of Working and Lower-Middle consumers, say restaurants are a great place to get together with friends.

Although few consumers actively follow restaurants through social media, those who do are most likely to be from Upper-Middle and Affluent households. Facebook, the leading social media site consumers use to connect with restaurants, appeals to consumers from all levels of wealth. However, Twitter and Groupon, in particular, are used regularly by Affluent consumers.

Two-fifths of Affluent consumers, compared to a quarter of Working consumers, say they prefer restaurants with new or innovative menus, suggesting that unique offerings may help attract higher-income consumers. Several ethnic cuisines, including Japanese, Spanish, Greek and Thai, are especially appealing to Affluent consumers.

Base: 914 (willing to try new foods) and 933 (new or innovative flavors) consumers aged 18+; responses were randomly rotated
Respondents indicated their opinion on a scale of 1–6 where 6 = agree completely and 1 = disagree completely
Source: The Influence of Income Consumer Trend Report

Key Takeaways

Consumers’ level of affluence strongly impacts when and how they use restaurants, and it would be easy to focus on these frequent diners. But while they are very important to the foodservice industry because of their high patronage, they account for just a small proportion of consumers. Therefore, it is important for operators to consider their lower-income customers as well.

Understanding the preferences of consumers at different income levels is key to developing strategies that meet the various needs of consumers, regardless of income.

Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit www.technomic.com.


Steak ‘n Shake Hits Broadway

February 3, 2012

Steak 'n Shake

Steak ‘n Shake Hits Broadway

Steak ‘n Shake opened its first New York City restaurant on January 12, and the chain used the opportunity to debut its new Steak ‘n Shake Signature counter-service prototype.

The new design is a leaner outfit that does away with the all-night schedule, some menu items, and table service. Customers will instead find a small, 22-seat, counter-service-only Steak ‘n Shake that offers a new organic beef hamburger, a high-tech drink machine, hand-cut fries, and beer and wine.

“The time was right [to open in New York],” says Jim Flaniken, senior vice president of marketing at Indianapolis-based Steak ‘n Shake, which is owned by San Antonio–based Biglari Holdings. “It’s the first of hopefully many to come in New York.”

Just north of Times Square on Broadway, next door to the famed Ed Sullivan Theater, the new unit is bright and sleek, with the company’s signature red as the dominant color. Bold graphic elements and dramatic lighting, including a yellow strip light that runs across the ceiling and down one wall, complement the décor.

The interior, which gives off a ’50s-hamburger-joint effect, is the brainchild of president and CEO Sardar Biglari, says vice president of operations Richard Scanlan. “This was really the CEO’s vision,” he says.

The Steak ‘n Shake Signature was designed for retail environments like strip centers, Flaniken says, not as stand-alone stores like the company’s classic outlets. It also comes with a lower point of entry for potential franchisees, at a base of $460,000.

“New concepts allow us to have franchisees come in with a lower investment,” he says. “This allows us to get into real estate we might not otherwise get into.”

Flaniken says the location of the first Signature will help make up for that fact that it does not include a drive thru like many traditional outlets.

“It’s a great area in terms of foot traffic,” Flaniken says.

“New concepts allow us to have franchisees come in with a lower investment. This allows us to get into real estate we might not otherwise get into.”New Yorkers won’t be able to enjoy some of the Steak ‘n Shake menu items that are available for customers in other markets. Missing from the store’s menu are breakfast, salads, and sandwiches. Instead, the minimal menu focuses on the company’s core products: steakburgers and milkshakes. The leaner menu was designed with simple and speedy in mind and also to meet Americans’ increasing demand for organic options. The new Signature Steakburger is made from 6 ounces of 100 percent USDA-certified organic beef.

Customers will also have access to the Coca-Cola Freestyle machine, along with a selection of wine and bottled beer, plus a local brew, Brooklyn Lager, on tap.

Although New York is notorious for its high prices, the Signature’s prices are the same as at Steak ‘n Shake outlets across the country. Biglari made a commitment to keep menu prices as they are across the system in 2012.

“When you’re pushing a new concept, it’s pretty important to start with a lower price point, and ultimately you may see those increasing over time,” says Darren Tristano, executive vice president of food industry consultant Technomic. “But price will determine who uses the brand, and then ultimately execution and quality determines whether they come back.”

David Kincheloe, president of Golden, Colorado–based National Restaurant Consultants, says he’s not surprised Steak ‘n Shake is taking the opportunity in New York to launch a new prototype. Consumers expect change, Kincheloe says, and are always looking for something new to try along with familiar comfort food menu items.

“We encourage even successful clients to reinvent and improve their concepts,” he says. “Every four to seven years is prime.”

The timing on the new market and new prototype may especially be strong for Steak ‘n Shake, Tristano says, because the economy is rebounding and customers are increasingly interested in higher quality fast food.

“Considering their history, positioning, and price point, they’ve got as good a chance as any to succeed in the New York market,” he says.

While there has been plenty of interest in the new concept, Flaniken says, there are no firm plans for the next Steak ‘n Shake Signature. But the company sees the prototype as an opportunity to expand not just in New York, but also in markets across the country.

“We will be building Signatures in areas with classical Steak ‘n Shakes,” Flaniken says.

View the full article on QSR Magazine