What They Say vs. What They Do

Technomic looks at impact of gas prices on restaurants; NRA details 2006 trends

Published in CSP Daily News

CHICAGO -- Technomic Inc. asked consumers how gasoline prices were impacting their dining choices. On average, 40% said they had cut back within the last week. Lower-income consumers were not the only ones feeling a crunch. The percentage cutting back ranged from 43% of those earning less than $35,000 a year, to 35% of those earning over $75,000. Of those cutting back, 70% said they opted to eat food from home instead of dining out.

But if so many consumers are feeling a pinch, why haven't restaurants seen a corresponding drop in sales? To resolve the [image-nocss] what they say vs. what they do question, Technomic analyzed its research against restaurant performance and macroeconomic trends. Higher gas prices are putting a drag on restaurants' overall revenue growth, said Michael Allenson, director of Technomic's Center for Consumer Research. While only a small percentage of consumers are actually cutting back, many are restraining growth in their restaurant spending.

He added, The bigger impact is in consumer mindset. What is clear is that consumers across the board are very sensitive to the impact of gas prices on their budget and are gravitating towards food sources that they view as offering a good value. This change in consumer mindset was apparent in attitudinal data compiled by Technomic's ROOT (Restaurant Occasions Ongoing Tracking) research program, which revealed that consumers are more focused on price and value in their restaurant decision-making.

Even though gas prices have dropped recently, consumers still expect future increases. Those surveyed by Technomic estimated that, on average, gasoline would be back up to $2.96 a gallon by next summer and $3.90 in three years. These expectations seem to indicate that consumers will remain more focused on value for some time to come, said Allenson. And as long as consumers are concerned about gas prices, it's likely that restaurants will need to step up their efforts to compete for a slower-growing pie.

And in fact, after weeks of declining prices, Americans are again paying more at the pump with retailers charging an average of more than $2 per gallon in all but one state, AAA just announced (see story in this issue of CSP Daily News).

Separately, restaurant industry sales are expected to reach a record $511 billion in 2006, according to the National Restaurant Association's just-released 2006 Restaurant Industry Forecast. The projected annual sales would mean a 5.1% increase over last yearand a total economic impact of more than $1.3 trillion. It is the first time the industry's sales will cross the half-trillion dollar mark.

With more than $1.4 billion a day in sales, the restaurant industry's share of the consumer food dollar is nearly 48%, said Steven C. Anderson, president and CEO of the NRA. In the year ahead, the restaurant industry is poised to set a recordover one half-trillion dollars in direct sales. It will also mark the industry's 15 year of consecutive real economic growth.

The report highlighted the following trends:

Heightened focus on health and nutrition. Nearly three in four adults (72%) say they are trying to eat more healthfully in restaurants than they did two years ago. More than half of all operators, in both the quick-service and table service segments, reported greater customer demand for items such as entr ae salads and bottled water now compared to two years ago. Also, majorities of operators reported that items like wraps, pitas and tortillas are more popular than two years ago. Restaurants as homes away from home. With growing demand from plugged-in Americans accustomed to operating in a 24/7 society for amenities such as TV and wireless Internet access, look for restaurants to bring more of these features to the table; 27% of adults surveyed said they would likely use wireless Internet access if their favorite table service restaurant offered it. The percentage rose to 52% for adults aged 18 to 24. Table-top TVs spark interest as well. One in four adults surveyed said they would watch a small TV at their table if their favorite full-service restaurant offered it. Increased attention to energy efficiency. Higher energy prices will force belt-tightening among some restaurant operators as well as consumers. A majority of operators anticipate higher energy expenses that will eat more of their bottom line next year. In addition, a majority report they have updated refrigeration, air conditioning and heating systems in the last two years, which will help contain cost pressures. Demand for convenience. Some 34% of adults say purchasing takeout food is essential to the way they live. Whether they are looking for a quick drive-through or a hot meal delivered to the car to take home, consumers will escalate their desire for convenience. Consumers readily embrace convenient services operators offer: curbside service, drive-through, delivery and takeout. Watch for more full-service restaurants in 2006 to go more aggressively after the takeout and delivery markets.

Among the major segments, sales at full-service restaurants are projected to reach $173.4 billion in 2006, an increase of 5.2% over 2005. Full-service operators are optimistic about the economy, as a solid 69% of fine-dining operators, 59% of casual-dining operators and 48% of family-dining operators indicate that they expect their sales in 2006 to be higher than in 2005. Quickservice restaurants are projected to register sales of $142.4 billion in 2006, a gain of 5% over 2005. Consumer demand for convenience and value will continue to drive growth, while operators continue to face stiff competition from grocery and convenience stores.

Even with the challenges of rising energy costs and major hurricanes in 2005, the nation's restaurants are entering 2006 with a solid performance and optimism about the future, said Hudson Riehle, senior vice president of the NRA's Research & Information Services Division.a