The news: Restaurant prices rose 3.7% YoY in September, per the US Bureau of Labor Statistics.

• Consumers have noticed: 82% say restaurant prices have “increased noticeably” in their area over the past year, per YouGov.
• That price pressure is reshaping behavior. More than a third of consumers (37%) are dining out less, a share that jumps to 44% among lower-income households. Among those cutting back, cost is the driving factor. The top reasons cited were “it’s more expensive to eat out” (69%), trying to save money (58%), and the higher overall cost of living (57%).

Shifting behaviors: Over half of consumers (54%) have changed their consumption habits to save money, according to YouGov. This shift has created a downward chain reaction in which higher- and middle-income consumers are trading down to less expensive restaurants, while many lower-income consumers have stopped dining out altogether.

These trends have opened opportunities for Chili’s and Texas Roadhouse, both of which have outperformed the broader full-service restaurant category by leaning into value-driven strategies to attract more middle- and higher-income consumers.

• Chili’s has driven demand with eye-catching promotions like its “3 for Me” meal—a beverage, appetizer, and entrée for $10.99—while Texas Roadhouse has leaned on an early dine-in menu featuring discounted entrées.
• Both chains also use a barbell pricing strategy, keeping some menu items at accessible price points while offering others at a premium. The model enables them to appeal to value seekers without losing those splurging on special occasions.
• The approach has worked. Chili’s visits rose 19.0% YoY in Q2 and 15.4% in Q3, while Texas Roadhouse posted gains of 3.7% and 3.6%, respectively, which is well ahead of the flat performance across the broader category, per Placer.ai.

Those same economic pressures are creating stiff headwinds for restaurants serving less affluent consumers. Visits to McDonald’s fell 3.5% YoY in Q3, which is well behind the QSR category’s 2.3% decline over the same period. Traffic remained sluggish even after the September reintroduction of the Extra Value Meal. While the chain has sought to reclaim its value-leader status, many of its price-sensitive customers remain hesitant to spend.

Our take: Restaurants face a difficult balancing act.

• 2 in 5 operators (40%) rank profitability as their top priority, up from 35% last year, per a recent Toast survey. And their main strategy for boosting profits is driving more guest demand. But as costs rise, nearly half (48%) plan to raise menu prices if inflation continues.
• That leaves operators in a tight spot where something has to give. If higher prices cause consumer spending to slow, each of their top fallback strategies—increasing marketing (47%), offering deals (46%), and running time-specific discounts (45%)—risk squeezing margins even further.

To navigate that tension, operators can take a page from Chili’s and Texas Roadhouse by pairing value-led promotions with built-in upsell opportunities.

• For instance, they can promote bundled meals or limited-time offers that bring in price-sensitive guests while offering a host of high-margin upsell options like innovative beverages or shareable appetizers or desserts.
• They may also find success by tapping into their loyalty programs to make promotions work harder. By using customer data to segment audiences and tailor rewards based on how often they visit, how much they spend, or what they typically order, restaurants can deliver more personal and relevant offers. That kind of targeting encourages repeat visits and bigger checks without resorting to broad discounts across the menu.