Fast-food traffic fell 3.5% year over year in August, even as average price rose 2.6%, according to a new report from the consulting firm Revenue Management Solutions (RMS). The arithmetic is brutal: chains raised prices and still lost business.

The report adds to mounting evidence that the restaurant recovery is splitting along income lines — the so-called K-shaped economy — and that the gap is widening rather than closing.

What does the RMS report show?

The divergence is stark at both ends of the income distribution:

• 48% of consumers earning more than $100,000 say they are spending a bigger share of their income on dining out than last year and ordering takeout more often — a figure up 15% year over year.
• The same 48% of consumers making $50,000 or less say they have cut back on casual-dining restaurants and coffee shops, up 10% over the past year.

National Restaurant Association data point the same direction. While 80% of consumers overall visited a restaurant in the past week, higher-income consumers were far more likely to say so than lower-income consumers, with a gap of roughly 20 percentage points.

Some of that gap is structural. Higher-income consumers have always dined out more because they have more money, and restaurant spending is among the easiest categories to cut when budgets tighten. What has changed is the persistence and depth of the weakness among lower-income diners.

Why does this hit fast food hardest?

The quick-service model depends on volume: low prices sold to a very large number of customers. The sector comprises more than 187,000 restaurants that generated $294 billion in sales last year, according to Technomic.

Lower-income consumers, roughly half the population, historically visit fast-food chains more frequently than higher-income diners. Inflation-driven menu price increases priced many of them out of their historical visit frequency. Rich Shank, an analyst at Technomic, calls the result "an affordability crisis."

The traffic problem has already reached the top of the industry's largest chain. McDonald's CEO Chris Kempczinski said executives expect a flat traffic environment for the foreseeable future — and by RMS's numbers, traffic would actually have to improve just to reach flat.

What have chains tried, and why isn't it working?

Operators have deployed nearly every tool available:

• Record numbers of limited-time offers aimed at value perception
• New lines of business beyond the core menu
• A value war as intense as any in the past two decades
• Expanded ordering channels
• Investments in operations and food quality

None of it appears to be working, per the RMS findings.

The strain shows up across the franchise system. Franchisees are filing for bankruptcy. Chains that looked successful are closing stores. And multiple chains keep changing CEOs in search of an answer to the traffic problem.

What happens next?

The core constraint is outside operators' control: lower-income consumers are struggling in an economy where everything costs more. Until prices ease or those consumers gain spending power, RMS's data suggest the two-track environment — robust spending at the top, retrenchment below — will define restaurant demand.