If you’re waiting for consumers to return to their free-spending ways, make sure you’ve found a comfortable seat—it’s going to be a while. That’s the word from restaurant industry analysts, who expect restaurant spending to be flat for at least the next 12 months. The culprits: “Consumer confidence isn’t going up, and unemployment isn’t going down,” says Eric Giandelone, director of research and foodservice at Mintel International in Chicago.
Indeed, consumer confidence was low during the summer months, showing just a modest gain in August, to 53.5 points. (By way of comparison, when the economy is healthy, the index reads at least 90.) “Consumers remain apprehensive about the future,” says Lynn Franco, director of the Conference Board’s consumer research center, which tracks consumer confidence data. “All in all, consumers are about as confident today as they were a year ago.”
Meanwhile, the broad economic picture didn’t improve: Unemployment remained above 9 percent for 15 months, foreclosure rates remained high and the housing market continued to struggle—bad news for consumers and the restaurants that serve them.
However, there are a few bright spots. The most notable: fast casual, which offers diners good quality food at a low price—an appealing combination in lean times. “Consumers say they’re looking for fresh ingredients and tasty food at an affordable price,” says Bonnie Riggs, restaurant industry analyst for Port Washington, NY-based NPD Group. “When we can find that need and satisfy it, we’re going to get them out of their homes. It’s a small treat relative to all the other things they can’t do.”
That assessment rings true with executives at Smashburger, a Denver-based chain with 76 units. The “better burger” concept doubled revenues in 2009 due largely to new units coming online, though same-store sales are essentially flat. “Consumers are liking the concept,” says David Prokupek, Smashburger’s chairman and CEO. “We create a nice environment, and they like the price point—$8 to $10 per person.”
Other segments aren’t faring so well. Riggs reels off a list of those that are hurting: casual, family, full-service and fine-dining. Over the last 18 months, for example, casual chain Bennigan’s has closed more than half its units. In the beginning of 2010, the Texas-based chain had just 41 locations, down from 279 two years earlier.
Meanwhile, like many of its fine dining peers, Ruth’s Chris Steakhouse is also struggling. Part of the problem is that up to 70 percent of high-end steakhouses’ customer base is supported by business-related expense accounts, according to Darren Tristano, a food industry analyst at Chicago-based Technomic. Like household budgets, corporate expense sheets have been trimmed in the face of the recession. The chain has tried to lure in reluctant spenders with a $90 dinner for two, a move that Tristano suspects may backfire when the economy improves. Regardless, Ruth’s Chris closed two of its 117 units in 2009. Tristano says additional closures may be on the horizon if units continue to underperform.
Who’s buying—and who’s not
The heaviest restaurant users are between the ages of 25 and 49, according to NPD. For the 12 months through June 2010, 25- to 34-year-olds made 236 restaurant visits per person, down from 249 the year before, while 35- to 49-year-olds made 220 visits in the same time period, down from 230. Members of this demographic continue to dine out, though they may be ordering fewer drinks and otherwise economizing in the face of the uncertain jobs outlook.
Likewise, older diners continue to hold their purse strings rather tightly. “The older, more affluent consumers are tightening their belts,” says Tristano. “They’re going to wait it out until real estate improves and the market goes back up.”
In the meantime, operators may want to target Millennials, whom Tristano defines as being 16 to 28 years old. Check averages may be low— “They’re drinking $1 Pabst Blue Ribbon rather than Sam Adams,” says Tristano—but this group continues to dine out frequently, meaning you may see a higher number of visits per person.
Whomever you’re trying to reach, Tristano recommends extending happy hour, offering small plates or introducing tapas-style menu items. “Customers can indulge,” he says, “but at a lower price point that will get them in the door.”