As the cost of fast food continues to rise, young adults are cutting back on their expenses, prompting restaurant chains to vie for their business by offering meal deals and promotions.
The escalating prices have deterred individuals like Fatima Abdul Razzaq, a second-year electrical engineering student at Toronto Metropolitan University, who finds dining out more costly and inconvenient than before. Marwan Al Kharrat, a second-year computer engineering student at TMU, echoed this sentiment, expressing that spending $15 or more on a meal is unsustainable and unaffordable.
A recent Angus Reid survey revealed that 75% of Canadians are dining out less frequently due to the increasing cost of living, with the percentage rising to 81% among those aged 18 to 34. This trend poses challenges for major restaurant chains aiming to attract the next wave of consumers, with some already experiencing a decline in sales.
Chipotle, once popular among young customers, is now struggling to attract Gen Z patrons, particularly those facing financial constraints. Stephanie Perdue, vice-president of brand marketing at Chipotle, noted a slowdown in the 25-to-34 age group experiencing financial pressures.
During Chipotle’s third-quarter earnings call, CEO Scott Boatwright attributed the sales slowdown in the U.S. to factors such as higher unemployment rates, sluggish wage growth, and increased debt. The company revised its sales forecast downward for the third time this year, anticipating continued reduced spending on dining out, especially among customers earning less than $100,000 annually.
McDonald’s is also bracing for lower sales from budget-conscious diners in the upcoming year, as reported by CEO Chris Kempczinski. Rising costs of labor and food are contributing to higher menu prices, driving consumers to spend more when dining out.
The spike in ground beef prices, for instance, has significantly impacted average meal costs. Fast-food sales serve as an economic indicator, reflecting consumers’ ability to spend beyond necessities. The Bank of Canada’s latest Monetary Policy Report highlighted robust growth in fast-food prices, influenced by ongoing economic uncertainties like the U.S. trade war.
To lure back frugal customers, some chains are aggressively promoting meal deals and specials. Taco Bell, owned by Yum Brands, is targeting Gen Z with trendy offerings, while Restaurant Brands International, the parent company of Tim Hortons and Burger King, reported stronger-than-expected third-quarter results due to strategic meal deals.
Amidst these shifts, fast-food chains are competing with grocery stores for young consumers’ spending. Chipotle views grocery stores as its primary competition for young adults, with CEO Scott Boatwright noting a trend of consumers opting for home-cooked meals over dining out.
In response to these changing consumer behaviors, restaurants are ramping up promotions and discounts to remain competitive. Younger consumers are placing more emphasis on meal deals when selecting dining options, indicating a shift in preferences towards value offerings.
With the rising cost of dining out, many students are opting to prepare meals at home and bring them to school or work. This shift in behavior underscores the challenges faced by fast-food chains in retaining younger customers in the current economic landscape.