Making Waves: Consumers Finally Balk at Price Increases

Store closures, bankruptcy filings, and scrambling price adjustments are indicators that all is not well for major retail and restaurant franchises. Prices have been rising for years yet supply chain issues and the rising costs of goods and labor have been proffered to consumers as reasons for quarterly price hikes. Consumers have been reluctant to accept these changes, yet things have trudged forward, and many companies have posted record profits over the last few years. So far this year, it seems that all is not well. Major chains are posting their first negative quarters since 2020 and consumers don’t seem to be buying anything right now. Election years tend to make consumers hold onto their dollars, yet there is more than just the ballot box to blame for these shortcomings. Changes are on the horizon, yet will they be enough to win back consumer confidence?

Red Lobster, one of the largest seafood chains in the U.S., just closed dozens of stores and more could be on the way. The company announced that it would be filing for bankruptcy and suddenly employees all over the U.S. were out of a job overnight without warning. The abruptness of Red Lobster’s closures is a surprise, yet the closures themselves are not. Red Lobster is one of many restaurants , including giants like Starbucks, who are going through some financial woes. These financial struggles are not exclusive to the restaurant industry with retailers like Home Depot and Walmart facing pressure from consumers. Retail and restaurant prices have skyrocketed over the last few years and there was always a fear the companies would eventually hit a number that consumers were no longer willing to pay. We seem to have reached that point and now retailers are shutting down stores and rethinking pricing strategies.

Prices have risen considerably since 2020 and up until this year, consumers have been elastic when it comes to paying more for the same amount of goods or services. There have been difficult stretches, yet many companies have posted record profits in the last three years. In that time, companies have largely done away with discount goods and value meals and moved to pushing higher priced items. Companies like Chipotle have even come out and said that they are unconcerned with less traffic from lower-income consumers. Alienating consumers when spending is tight is a risky strategy and right now, too many feel alienated. Retailers and restaurant have lost their value proposition, and they will spend the next six months trying to get it back and reverse course on a year that has been disastrous so far.

Red Lobster represents the extreme end of the spectrum, and the majority of companies won’t be looking at closures and bankruptcy to right the ship. Restaurants are trying to bring back value menus and stores are looking to provide more sales on essential goods. We have even seen Target and Walmart turn away from self-checkout lanes as they reportedly led to lost sales. Both retailers and restaurants will be turning to technology to win back consumers with loyalty apps taking center stage. A focus on off-premise sales could appeal to consumers who get extra value out of convenience. Ultimately, stores will need to provide lower priced alternatives or provide an added value to goods that prove to consumers that higher prices are worth it.

The shopping boom that followed the pandemic has ended and it is time for companies to rethink their pricing strategy. Some retailers have grown out of touch with their customers and relying on higher-income clients is no longer a valid strategy. There is still time to turn the year around and companies need to make changes now. With no more excuses, the only thing companies and consumers care about is the bottom line.