A lot of digital ink has been spilled over the next calamity around the next corner for restaurants and the economy in general. Nothing seems to sell better in today’s market than fear and we are consistently hearing about the dangers ahead, both real and imagined. Like the consumer market, I’m of two minds on this subject. On the one hand, the fighting side of fight-or-flight kicks in and many of us doubled down on what keeps us competitive. On the other hand, the flight side of us is prone to delay investments and quite possibly leads to prematurely call it on the necessary risks that must be taken to grow our businesses.
The tough thing about consistently hearing about a coming recession, which is not quite here, but may be looming (or maybe not) is that it leads to cognitive dissonance. It’s almost as if we are collectively trying to talk ourselves into one.
For consumers, the question of why personal finances are still historically strong buts up against these around-the-corner fears and leads to a lot of pessimism. Then inflation starts to rise, as does debt to a historically small extent and you get a collective mood that is nothing short of angry. That pessimism spilled over into the market outlook in many sectors. It’s true that technology companies are in the midst of a correction cycle, seemingly over-estimating their growth coming out of the pandemic and having to shed those they staffed up with to capture that growth. As it turns out, not all things can be digitized (at least not yet). Despite the headlines about the technology sector, the labor market has been strong and inflation pressures are easing, though still more slowly than our rate-setting overlords would like.
The consequence has been a very polarizing national mood. According to the University of Michigan’s Consumer Sentiment report, consumer sentiment fell below 60 for much of the year and reached as low as 50. Of all the months in the years since the 1950s where the sentiment score fell that low, 32% of them occurred this year alone. Not during the height of the lockdown and job losses during the pandemic. Not the year we were struggling to reopen our businesses or to make up for the ground we lost in 2020. But this was the year where consumer sentiment cratered. It was also a year when traffic to restaurants returned to a year-over-year growth pattern that is more predictable. In fact, they are starting to look very much like the traffic patterns from 2019 and before.
Despite all the negativity churning out of social media and our politics, despite heightened labor competition and higher costs, the restaurant market wound up settling into a cadence that looks normal on the surface. That is a phenomenal achievement that both front-line staff and corporate support employees should be proud of. Under the surface, we had to deal with customers who arrived at restaurants with that confounding fear and sometimes anger. Who would have thought a simple piece of fried cauliflower would trigger that much scorn?
Beyond having to cover for the dastardly Big Cauliflower cabal, restaurants also had to deal with uncertain costs and often had to price menus out of the same context of fear and uncertainty their customers were tweeting about. They worried about what traffic would be like because of the news about consumer sentiment, growing inflation and whether our aggressive pricing actions were too much or too little. But after all was said and done, the big chain growth rate looks very much like it did in 2018 and 2019. For the year, large chain traffic fell 0.5%, but our preliminary total market projections are net positive from a revenue standpoint. This year’s traffic numbers are not world-beating, but they are nearly identical to 2018 when consumer sentiment was much higher. The brands that did well were largely the same that were doing well before the pandemic (i.e., fast-casuals, QSR +, upscale and experience-forward full-service restaurants).
Since we are on the topic of the national mood. That very same University of Michigan Consumer Sentiment Study has shown significant improvement in sentiment in the past few months. There was a 22% increase in the score from 59.7 to 72.6. On top of that, internal tracking from our own Consumer and Operator Outlook Report is also showing signs of improvement. The number of consumers worried about their personal finances dropped by 3% (from 80% to 77% for those under 35 and from 87% to 84% for those 35 and older).
The percentage of consumers who made at least one restaurant visit per week returned to pre-pandemic levels (~70%). But more telling, for the first time in months the percentage of consumers who plan to increase ordering out in the coming months is higher than those planning to reduce their frequency (+4%). The net difference was entirely underwater at -13% just three months ago, just about the time the summertime traffic slowed down started to wane.
While there are both real (e.g., supply chain shocks due to climate, war or other natural causes, service disruptions due to extreme weather, still high but easing inflation, etc.) and imagined calamities (e.g., fried cauliflower sandwiches or whatever is trending on social media at this moment) still around the corner there is a lot to be proud of and celebrate going into his new year.
It may seem odd to celebrate an overall traffic growth rate of sort of down to flat, however, our revenue growth has been strong and after coming off two consecutive years of record price increases, it is safe to say that our customers are still in the market becoming less moody (though still not back to pre-pandemic moodiness). Every restaurant will not experience the world like this, but they should know that customers are still out there waiting to be delighted and they are somewhat happier. So, to those restaurants, it will feel odd to celebrate something that appears normal.
If you put last year’s performance into the context of an overly negative national mood, then perhaps it’s time to realize the glass is still half full, even though the boat we are on is rocking and the water in the glass is swaying side-to-side. If you time things right, you can still take a swig without spilling and go for a refill in between swells.
Technomic is a sister company of Restaurant Business.
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