Financing

RLC’s state of the industry

The state of the industry, through Technomic and GE Capital’s eyes, is improving. Sloooowly.

In two information-packed sessions at the Restaurant Leadership Conference, the companies portrayed an industry still struggling, but finding more success than a year ago. In fact, there were nearly no negative metrics. Everything is improving… slooooowly.

The industry will grow this year, according to Technomic, but only by 3.7%.

There was an increase in personal consumption in the fourth quarter of 2010, according to GE, but only by 4 percent.

"Our consumers are coming back," proclaimed Todd S. Jones, managing director of GE Capital, Franchise Finance. But those consumers remain "fragile," with a recent 10 percent drop in consumer confidence based on the Japanese disaster and the upheaval in the Middle East. (So, yes, a Japanese earthquake impacts your bottom line.)

But the numbers, across the board, are positive, just not exciting. Other metrics the two companies outlined:

  • GDP saw its fifth consecutive increase in the fourth quarter of 2010.
  • As of February, consumer confidence was at 70 points, on an indicator of 100, up from a low of 25 in July ’08.
  • Unemployment is at 9.5 percent, down from a high of 10.4 percent in February 2010.
  • After growth in grocery spending left restaurant spending in the dust in ’09, restaurant spend is now growing faster than retail.
  • Restaurant sales have increased by 3 percent as of February after declines through the whole of ’09.
  • QSR, fast casual, casual and family segments are all seeing positive growth.

But you could say operators are pretty fragile these days too, and nobody can help but notice the two dark clouds on the horizon. But according to Jones, increased commodity prices and gas prices may not impact consumer confidence and spending as it has in the past.

"We saw last year that the consumer savings rate spiked," he says. “Disposal personal income grew during the downturn, but it went into savings… Consumers feeling more comfortable spending some of that money… Our consumers and economy are more resilient to shocks."

Technomic President Ron Paul even went so far as to say that the taboo of raising menu pricing may not be so taboo anymore.

"The environment is so saturated with information on [rising] food prices. I think consumers won’t be shocked [to see menu prices go up]."

To put a fine point on the topic, Paul showed a slide showing responses to the survey question, “What are the main things that would cause prices at restaurants to increase?”

Sixty-seven percent of respondents said rising food prices. Thirteen percent said it would be because restaurants want to make more money.

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