As the presentations flashed on the giant screen at CSP’s Restaurant Leadership Conference in Scottsdale, Arizona, this April, stirrings of optimism rippled through the crowd of 1,000 attendees. The line graphs illustrating economic growth for the first quarter of 2010 were inching upward for the first time in well over a year. Presenters from the National Restaurant Association, Technomic, Inc., G.E. Capital and MasterCard may have differed slightly in their exact figures, but all agreed that the state of the industry is improving.
Mike Gibbons, NRA chairman and president of Main Street Ventures, led off the conference by stating: “It seems fair to say that the nation is climbing out of one of the worst recessions we’ve experienced, and we’re on target to reach the NRA sales level projection of $580 billion this year. Our Restaurant Performance Index is now well off its historic lows and at its strongest level in more than two years.”
“This has been the most challenging period for the restaurant industry,” reiterated Hudson Riehle, senior vice president of NRA’s Research and Knowledge Group. He noted that the number of restaurant units—which usually grows by 1 percent per year—has remained static for the last couple of years and industry sales declined 2.9 percent in real terms in 2009. “But we’re looking for a return to Gross Domestic Product (GDP) growth of 2.8 percent in 2010.”
Although these signs of recovery are music to the ears of operators, consumer confidence is lagging behind. “Unemployment among the general public is still high and income growth modest; both have to improve to rebuild confidence. One-third of adults are not using restaurants as often as they can. And if gas prices go up, that may put the brakes on restaurant growth,” Riehle noted. That said, there is a lot of pent up demand for restaurant visits, especially among higher income households.
In fact, fine dining is showing a stronger rebound than other segments, according to Michael McNamara, senior vice president of MasterCard SpendingPulse, which monitors restaurant sales every month. “There’s a bounceback at fine dining, but as you move down to the QSR level, the recovery is slower,” he said. Casual and quickservice traffic is more dependent on gas getting pumped and “driving patterns are not back to normal due to high unemployment and less discretionary driving on weekends.” However, McNamara predicts that as we move into the summer travel season, there should be an upswing in restaurant spending.
Although the economy is still the number one headache among restaurant operators, other challenges are beginning to get attention. As employment gradually returns to pre-recession levels, recruiting, training and retaining workers will again become a concern, Riehle believes. The industry lost 250,000 jobs since the recession started and 42,000 have been added back during the first quarter of 2010, he reported. “The labor participation rates of teenagers is down and the number of employees 65 and older has increased 20 percent. Plus, technology will play a greater role in productivity in the next decade.” All will impact the future employment picture, which Riehle expects to be rosier by 2012.
Restaurateurs are also facing a very challenging regulatory and legislative environment. Gibbons cited the impact of health care reform, which may be particularly onerous in an industry that employs many part-time and seasonal workers. The proposed Employee Free Choice Act could be another thorn. This bill would establish a “card-check” union organizing system to make it easier for workers to support union representation. It would also institute binding arbitration in which the government could determine all wages, benefits and working conditions for unionized private sector employees.
Gibbons urged attendees to elect pro-business candidates to help shape the next Congress. “If we truly want to remove the burden of excessive government regulation from the independent restaurant operator, we need to be proactive and help create free-market alternatives. Affordable insurance options would be a meaningful first step, and the NRA has been working hard at this.”