With the Q2 2023 reporting season largely in the rearview mirror and Subway finally finding a suitor this week, we thought we’d examine where the QSR sector stands heading into the back half of 2023 and 2024. As was the case when we looked at the casual dining sector last month, value remains front and center within the limited services restaurant category (which includes QSR, fast casual, and coffee/snack). Visitation trends for the limited-service restaurant sector remain positive on a year-over-year basis–albeit at a decelerating pace–but still ahead of the full-service dining segments that are experiencing year-over-year declines (below). Most of the recent deceleration in visitation trends appears to be the result of lower-income consumers who have traded down to value grocery, dollar stores, and convenience stores to some extent, although we’ve also seen some impact due to extreme temperatures in some markets (more on that in a minute). Helping to offset the decline in visits from lower-income consumers is an uptick in middle income consumers, who have traded down from casual dining chains to QSR.
Taking a step back and looking at things from a bigger picture perspective, limited-service restaurant chains now represent a larger percentage of total dining visits. Pre-pandemic, the limited-service restaurant sector represented about 65% of visits for the total dining sector, while full-service restaurants represented 35%. With many full-service restaurant chains–especially regional players–permanently closing locations during the pandemic, it’s not a surprise that we’ve seen a shift in this visitation mix, with limited service restaurants now representing close to 70% of total category visits (which has remained relatively steady since late 2020) compared to 30% for full-service chains. While that may seem like a small percentage, it represents a massive shift given the size of the restaurant category and indicative of changing consumer behavior. In many ways, this explains why full-service and fast-casual restaurants continue to emulate many of the tactics that have made QSR chains successful coming out of the pandemic, including enhanced mobile ordering, expanding in-restaurant takeout preparation areas, pickup windows, and use of virtual/ghost kitchens.