If you've been paying attention to the news, you may be reminded of the phrase "Trees don't grow to the sky."
Both McDonald's and Starbucks have said in their most recent earnings reports that they've seen a drop in sales that they attribute to their higher prices — though Starbucks may also be dealing with the effects of a boycott over its response to unionization efforts at its locations.
McDonald's is going to take a "forensic approach" in reviewing its prices and trying to create value for customers, CNBC reports.
“We recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors but it’s clear that our value leadership gap has recently shrunk. We are working to fix that with pace,” McDonald’s CEO Chris Kempczinski said on the company’s earnings call.
As for Starbucks, CNN quoted Placer.ai analyst R.J. Hottovy as saying, "Your more cost-conscious consumer, they’re finding other places or just doing things at home. There’s also more competition from some of the drive-thru coffee chains, like a Dutch Bros."
Everyone has had to deal with inflation, and that's why businesses have raised prices on their goods and services. Some, of course, used inflation as an excuse to raise prices higher than arguably necessary, but everything costs more, and businesses naturally passed along those increased costs to consumers in order to try to maintain their profit margins.
The problem, of course, is that everyone is dealing with inflation. Just about every business has raised their prices, so consumers have had to deal with everything becoming more expensive. It's a key issue in the upcoming U.S. presidential election.
The good news for hoteliers is that people want to travel, and they will, to a degree, prioritize experiences over things.
Still, there's a limit to how much people are willing to pay.
It's a bit of an extreme example, but look at what hoteliers in Paris are doing. Reuters reports they've realized that the higher rates they set for the Olympics may be too high, so they're lowering them to try to draw in more demand.
"The Paris Tourist office said Monday that average hotel prices during the games have fallen to €258 ($276.36) per night — down from €342 earlier in the summer, which had represented a 70% increase from the average €202 price in July 2023," the news agency reports.
Even for the Olympics, there's a ceiling.
I'm not a revenue manager — I just interview them — so I have no actionable advice here on rate strategy.
Instead, the best thing I can say is keep an eye on consumer sentiment and confidence as we make our way through the year. The economy is currently in good shape, but there are bound to be hurdles along the way.
Hopefully, we all see some relief on rising prices, and consumers can feel less price-conscious and feel more comfortable with their spending.
You can reach me at bwroten@hotelnewsnow.com as well as LinkedIn.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.