The National Restaurant Association is projecting record foodservice sales in 2016 as consumers eat out more often —their finances improved by years of saving, an improving economy and lower gas prices.
The trade group is projecting sales of $782.7 billion in 2016, according to the forecast. That’s a 5 percent increase over 2015’s sales volume of $745.6 billion.
Assuming that projection holds, that would be a 2.1-percent increase when adjusted for inflation — the first time in more than a decade that industry sales rose by more than 2 percent in adjusted terms in consecutive years.
That sales growth is expected to be largely broad based and split evenly between full-service and limited-service restaurants.
The restaurant industry has been adding jobs at a rapid clip over the past two years, and that continued into 2016 — the industry added 46,700 workers in January, or close to one out of three jobs the economy created that month.
Despite the growth, the association noted that the industry faces its share of challenges, notably in the form of labor demand.
“Though the overall economy is trending in the right direction, the operating environment isn’t without challenges going into 2016,” Hudson Riehle, senior vice president of research for the restaurant association, said in a prepared statement. “With overall tightening in some labor markets, we’re seeing recruitment and retention making a comeback as a top challenge for restaurant operators.”
The association’s economic forecast said that the labor pool is not as deep as it was in the aftermath of the recession and so openings are taking longer to fill. The restaurants and accommodations sector averaged more than 660,000 openings in 2015 — the highest rate in at least 16 years.
“Recruitment and retention of employees will re-emerge as a top challenge for restaurant operators, as a tighter national labor market means greater competition with other industries for employees,” the NRA said. “Workforce demographics are shifting to include a greater proportion of older workers while the younger labor pool is shrinking.”
Indeed, in 2007, teens 16 through 19 represented 20.9 percent of the restaurant workforce. By 2014, that percentage fell to 16.6 percent. Fewer teens are working: Teenage labor force participation rate fell from 41.3 percent in 2007 to 34 percent in 2014.
Turnover rate is increasing, meanwhile. Restaurant industry turnover increased in 2014, to 66.3 percent from 62.5 percent, though the hospitality industry turnover in 2014 remained lower than average, historically. In 2007, for instance, turnover was 80.9 percent in the restaurant industry.
A growing number of consumers consider technology an expectation, rather than a novelty, at their local restaurant, and consumers want to use kiosks and mobile ordering technology. But two in five consumers say that technology makes restaurant visits more complicated, suggesting that many of these efforts are not as user-friendly as they should be, the NRA said.
The restaurant industry is benefiting from an improving economy. Low interest rates and low gas prices coupled with rising employment led to growing demand for restaurants in 2015 and that’s expected to continue this year — though the NRA’s projected growth this year would represent a slight slowdown from 2015, when the industry’s growth hit post-recession highs.
The restaurant industry’s share of consumers’ food dollar is up to 47 percent, from 25 percent back in 1955.
Still, the NRA says that many consumers are still holding back on spending as they work to shore up their finances. Seven in 10 consumers are still holding back spending, according to a survey done for the association, and less than three in 10 consumers are confident enough in their financial situation that they are not holding back.
The diminished spending, the NRA says, means there is still plenty of “pent-up demand” for restaurant use among consumers. According to the association, 40 percent of adults say they are not eating at restaurants as much as they’d like, and 41 percent aren’t ordering takeout or delivery as frequently.
According to the association, 57 percent of adults, and 65 percent of young adults, would spend an extra $60 per month at restaurants if they had it.
The pent-up demand is especially acute for lower-income consumers, but 24 percent of adults with incomes $75,000 to $99,999, and 28 percent of consumers with incomes $100,000 or more, say they are not using restaurants as often as they’d like.
Full-service restaurant sales are expected to grow 4.9 percent, or 2.1 percent when adjusted for inflation, to $259.2 billion from $247.1 billion a year ago. That’s similar to the 2.2 percent the full-service sector grew in 2015.
Table-service restaurant operators are optimistic about their expansion potential for the coming year, with operators of family-dining restaurants most bullish of all: 69 percent of such operators expect their business to improve this year; only 4 percent expect a decline.
Quick-service restaurant sales are expected to grow faster, at 5.9 percent or 2.7 percent adjusted for inflation, to $223.3 billion from $210.9 billion a year ago, according to the forecast. That would match the 2.7 percent real sales growth the sector received in 2015.
The industry is benefiting from continued improvements in the labor markets. As more people work, they have more money and demand the conveniences that limited service restaurants offer.
One interesting nugget: Consumers want their limited-service restaurant to deliver. Sixty percent of adults would likely use delivery if it was offered, but among younger consumers that percentage rises to 76 percent.
Off-premise consumption has long been vital for quick-service chains’ sales, but it’s a growing part of fast-casual chains’ sales: 29 percent of fast-casual operators said that off-premise customers made up a larger percentage of sales in 2015; only 8 percent said that percentage fell.
Coffee shop and snack locations are expected to grow the most, at 6.8 percent or 3.6 percent adjusted for inflation to $38.3 billion from $35.9 billion.
But cafeterias and buffet restaurants continue to decline. Sales are expected to grow 2.8 percent to $7.2 billion from $7 billion, but in real terms that’s a decline of 0.2 percent.