Foodservice Brief — November 2014
The economic outlook is more positive today than it has been in several years. This should bode well for consumers’ ability to increase spending at restaurants. Unemployment continues its downward trend, and Americans are displaying more optimism about the economic future. However, food inflation continues to be a concern to both consumers and restaurant operators as at-home food prices have risen a fair amount versus 2013.
Food Inflation: Quarterly % Change vs. Year-Ago
Source: Bureau of Economic Analysis
When at-home food inflation starts to increase at an accelerated rate, there are fewer dollars available for discretionary purchases, like visiting restaurants. Historically, when at-home food inflation was higher than away-from-home rates, restaurants would benefit. In today’s world, history does not seem to be repeating itself. Americans still eat the vast majority of meals at home, so if retail food costs increase, that leaves less money for visiting restaurants. Either consumers cut back on the number of visits they make to restaurants, or they find ways to manage how much they spend when they go out to eat. A review of industry sales for the summer months shows consumer spending in line with the overall food-away-from-home inflation rate of 3 percent. Restaurant dollar growth last summer was driven entirely by increases in the average price paid for a meal or snack.
Percent Change in Dollars — Total Restaurants Summer 2014
Source: The NPD Group/CREST®
As mentioned previously, there are several ways consumers can manage how much they spend when they go out to eat. Check management has definitely been at play in 2014. Consumers have continued to visit restaurants, but by being cautious and controlled in their spending habits, they managed to hold the line on the price they paid for meals and snacks.
Shown below are the menu choices that have found the most favor with consumers over the past seven years (YE August 2014 vs. YE August 2008). It did not matter which segment they chose to visit during this timeframe – the findings were the same. Consumers traded down in menu choices wherever they could. Across the board, burgers, sandwiches, and appetizers were the menu items of choice. Since appetizers are typically considered add-on purchases, the increased appeal of these menu items suggests consumers may have ordered them in lieu of purchasing an entrée, or they were purchased as a part of a bundled offer.
As consumers chose to order more of the menu items shown above, they became less inclined to order higher-priced main dish entrees and add-on items like sides, desserts, and beverages. Here again, the pattern was the same across all segments of the industry — managing check by trading down in menu choices.
|Main Dish/Entrees||Breakfast Foods||Breakfast Foods|
|Sides||Main Dish/Entrees||Main Dish/Entrees|
|Desserts/Snacks||Breads/Sweet Rolls||Breads/Sweet Rolls|
As consumers chose to order fewer items when they went out to eat, order size declined by 5 percent in 2014 compared to 2008.
Consumers continue to take advantage of deal-related offers. Over the past six years, traffic on deal rose by 10 percent, while regular-priced meals decreased by 7 percent. Clearly these incentives help consumers spend less when they go out to eat, shown by the check price on deal vs. non-deal:$6.32 vs. $7.35 respectively. Without these incentives to help consumers manage their checks, it is likely the industry would be experiencing overall restaurant visit declines. The use of coupons, buy some/get some, and discounted price promotions are the main drivers behind the increase in deal traffic.
Traffic % Change vs. Year-Ago*
YE August 2014 vs. YE August 2008
Source: The NPD Group/CREST®
When we examine all of the factors that can have an impact on check size, it’s clear consumers have many ways to manage their restaurant spending. Trading down in menu choices, ordering fewer items, increasing use of deals, and choosing to visit at times of day when they do not have to spend as much are among the possibilities. It will take a great deal of creativity for operators to build consumers’ value perception and/or add to the dining experience in order to drive traffic increases. While the dining experience is about more than just price, it is a major component in consumers’ willingness to visit restaurants. Aside from managing their own operating and food cost variables, restaurant operators face the additional challenge of consumers working to hold steady (or close to it) on their restaurant spend level.