At a recent economic summit, billionaire investor Warren Buffett told 2,000 business leaders that the recession was over.
“I am a huge bull on this country,” said Buffet, whose company, Berkshire Hathaway Inc., owns the Edina, Minn.-based quick-service chain International Dairy Queen. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”
But while the recession has indeed ended officially, as the “Oracle of Omaha” observed, many American consumers have yet to act on the news.
Although trend watchers find that Americans are slightly more upbeat than they had been in the depths of the downturn, they remain wary when it comes to dining out and are not expected to return to pre-recession-level spending anytime soon.
“Confidence has remained relatively unchanged for more than a year,” said Lynn Franco, director of the consumer research center for The Conference Board, which compiles the closely watched monthly Consumer Confidence Index. “The consumer still feels like it’s a recession.”
“We’re projecting that we won’t see a big rise in consumer spending for the remainder of this year and probably into early next year,” she said.
Restaurants, in fact, are among those businesses bearing the brunt of the protracted downturn. In a survey conducted in July, America’s Research Group in Charleston, S.C., asked consumers to cite the areas they have reduced spending the most.
“Going out to eat was No. 1; going to movies was No. 2,” said chairman Britt Beemer.
Survey respondents also said they are expecting this downturn to extend through the fall of 2011, he added.
Moods will swing
But though Americans continue to carefully weigh their spending habits in restaurants, most experts agree that the current mood will not last.
“When consumers do loosen the purse strings, dining out is an affordable form of discretionary spending,” Franco said.
Meanwhile, restaurateurs are beginning to look for signs that will help them decipher what the mood of the new consumer will be when the economy finally begins to rebound in earnest.
They question whether the deep downturn will leave a permanent imprint in the consumer’s psyche and, if so, to what degree; whether restaurant patrons will allow themselves to be weaned off value menus and other widely popular forms of discounting; and whether nutrition concerns will alter the ordering habits of the collective American restaurant-goer.
At the same time, operators want to know what kinds of new experiences customers will demand when they do return to the restaurant table.
While the debate persists about how the post-recession consumer will behave once the downturn is history — the 18-month-long recession officially ended in June 2009 — experts agree that most of us have not experienced anything like this before.
“The current consumer mood has resulted in more restaurant closures than we’ve seen in our lifetime,” said Gary Stibel, chief executive of the New England Consulting Group in Westport, Conn. “It’s been a brutal 18 months. But while it will continue to be tough — the economy is not getting better — I do think the worst is behind us.”
The overwhelming concern, though, is whether the consumer will return in the same robust numbers and with the same openhanded spending attitude industry enjoyed in pre-recession America. Some observers are doubtful, characterizing the current consumer mood as unparalleled.
“This is unique,” Beemer said. “In the past, during other downturns, people reduced their dining out frequency, but didn’t stop going out to eat. These days, many are just not going out at all.”
Frugal for now
One key question that remains to be answered is whether Americans — still nervous about the high unemployment rate, which has been hovering around the 9.5 percent mark — will continue to curtail their level of restaurant spending and instead invest their money in savings or retirement accounts.
The personal savings rate averaged 6.1 percent in the second quarter of 2010, up from an average 5.5 percent in the first quarter, according to the U.S. Department of Commerce.
“The savings rate has definitely gone up,” Franco said. “The country has experienced a tremendous loss of wealth in addition to deep unemployment.”
Eric Giandelone, director of foodservice research for Mintel International in Chicago, said his firm has observed “an uptick in the savings rate among consumers, growing from [a] negative [number] to becoming a substantial part of their budget.”
“That [behavior] may be hard to change going forward,” he said. “The way this recession affected people, you have to think that they will continue to save and that it will have a negative impact on the restaurant industry, at least in the short term.”
Like other observers, Giandelone said the unprecedented aspects of this recession have made it “hard to extrapolate where the consumer is going to go.”
“This one has the legs to last,” he said. “It was not just the baby boomers who felt this. Every generation felt this. The Millennials probably don’t even have jobs yet. There are no jobs for them to get.”
Beemer also forecast a continuation in consumers saving and projected that the current trend in savings likely will extend through late 2012 or even into early 2013.
Another potential development sparked by the recession is that the general loss of wealth could prompt some baby boomers to remain in the workforce longer. “Over the next decade or so we may see the baby boomers ease out of the workplace rather than leave it altogether,” said Tom Kelly, chairman and chief executive of Revenue Management Solutions LLC in Tampa, Fla. “This, actually, could bode well for restaurateurs.”
Baby boomers would be out from under mortgage and college tuition payments, he added, therefore they would have more discretionary income.
Another possible shift in the behavior of the average consumer stems from foodservice operators’ recessionary strategy of using discounting to sustain traffic. Stibel noted that restaurants will have to deal with the fallout created by widespread value meal deals and discount coupons.
“People have a taste for [discounting], and they’ll want more,” Stibel said. “It’s tough to wean the customer off that. We’ve seen it in the cola wars; we’ve seen it in the airline wars. It’s very tough to wean consumers off something that benefits them. The consumer has come to expect it now.”
He pointed out, however, that some quick-service operators like McDonald’s and Subway already have implemented successful strategies to deal with the problem.
“Restaurateurs will have to implement barbell strategies — offer lower price points to bring people in the door and more indulgent premium items that allow them to trade up,” he said.
“For example, you get people to come in to buy an inexpensive breakfast sandwich, and sell them a cup of coffee, which is more profitable.”
Health watch
Another question generating increased debate is how intently the desire to eat more healthfully is weighing on the consumer’s mind and whether “fear of food” will drive them in a new, unexpected direction.
With Americans routinely listening to government officials, politicians and members of the media expressing fears about the growing obesity problem and the need to focus on nutrition, foodservice operators wonder how rapidly consumers are going to react and whether those concerns will impact longstanding ordering habits.
When the Chicago-based chain Stir Crazy launched a line of more healthful menu items recently, Greg Carey, president of parent Flat Out Crazy Restaurant Group, said his company was responding to consumer demands.
“We’d been hearing for awhile that our guests wanted some lower-calorie menu items,” he said. “Maybe it was because of health care reform or something else, but there’s been a lot of buzz in the industry about healthier food.”
But while that health buzz is expected to persist — and perhaps even grow louder — executives and industry pundits continue to debate its real impact on ordering and sales.
Some say it reflects a fundamental shift in dining out.
“People are getting smarter,” said Anita Jones-Mueller, founder and president of San Diego-based Healthy Dining. “They want to eat healthy, look healthy, feel healthy. It’s becoming more important to their lifestyle. Some consumers are already there; some are exploring.”
And, she said, “With menu labeling coming, that will be a real game changer. Suddenly, people will be looking at calories as well as the price. It will definitely be a factor in consumer behavior.”
While there are few metrics to bear that out yet, Stanford Graduate School of Business conducted a study earlier this year showing that Starbucks’ customers purchased 6 percent fewer calories per visit at units that posted calorie counts on menu boards.
At the National Council of Chain Restaurants’ annual CEO Policy Summit in Washington, D.C., Susan T. Borra, managing director of nutrition, food and wellness at Edelman, a global public-relations firm, presented a new study exploring the consumer’s mind-set concerning health and nutrition.
Borra, a registered dietitian, advised foodservice executives that while Americans might not be acting decisively on health concerns at the moment, they are more aware of the issue than they have ever been before.
“Two-thirds of consumers are saying that they are making changes to their diet,” Borra
told Nation’s Restaurant News. “Could I find evidence to back that up? Maybe not. But they say it’s important aspirationally, and once people fi nd a value, they also find solutions to meet those value needs.”
The Edelman study, which queried 5,000 Americans, found that 59 percent of respondents believed that “business should be as engaged in maintaining and improving personal and public health as it is in maintaining and improving the environment.”
The study says 51 percent of those polled blamed food for the rise in obesity rates, while
42 percent said a lack of physical activity was the cause.
The study also found that 51 percent of participants believed that the food and beverage industry should help address the obesity problem. At the same time, 50 percent of respondents said operators should educate the public on health topics related to their products or services.
In answer to the question, “How is a ‘health-focused’ food or restaurant company defined,” two-thirds of respondents said 67 percent of a company or brand’s products should be considered “better-for-you” in order for the company to have a significant focus on health and wellness.
Borra, however, cautioned restaurateurs about reacting too quickly to perceived public opinions about health. “Most restaurant companies know their customers’ wants and needs very well, and for [a brand that] has not been known as a nutrition-oriented place, suddenly changing the entire menu will not work,” she said. “You have to move more gradually. [Your customers are] not going to stop eating those types of food they like. But they are looking for alternatives and solutions.”
Others are less convinced that large-scale change is imminent. Mintel’s Giandelone agrees that menu labeling will “be a big one” for the restaurant industry.
“We anticipate that initially people will be surprised when they see calories on menus — they obviously don’t realize how high [in calories] some items are,” he said. “And it may change behavior in the short term.
“But in the long term,” he continued, “it will be just one more thing on the menu, and most people probably will return to their old ordering habits. People will make decisions based on taste, and then maybe on health consequences. I mean, how else do you explain 10 million [KFC] Double Downs sold so far?”
Kelly advises operators not to take a “one-size-fi ts-all” approach to nutrition concerns.
“The general population is more aware than ever before about health — they’re emotionally aware of calories,” Kelly said. “But that is not homogenous across society.”
Restaurateurs need to make granular decisions about health-related menu adjustments, he said.
“You find certain demographics for markets like Los Angeles or New York or Marin County where health concerns are more top of mind, and then there are other areas where they’re not.
“And you have to think differently about dayparts and weekparts, too.”
Stibel also is doubtful that we will see a paradigm shift in ordering behavior any time soon.
“I think a lot of people are making more out of it than is really there,” he said. “I don’t think the consumer is going there. Consumers still want to have a good time and indulge when they go out. The average consumer is not going to be swayed much.”
Taste rules
What all observers agree on is that consumers always will opt for menu items that taste good.
“We’ve had a couple of millennia of development that cause us to like salt, fat, sugar and, for some, alcohol,” Kelly said. “That will not go away. We’re still going to like a cheeseburger and a cold Coke or Pepsi.”
Meanwhile, experts say smart restaurateurs will continue to give consumers want they want. And chiefly, the American consumer craves new iterations on items they already enjoy — like sandwiches, burgers, pizzas and coffee, many say.
“People are always interested in new tastes — like ethnic and international dishes,” Stibel said. “If a product performs, people will try it.”
And all experts agree that taste is the key decider. According to the Edelman study, 86 percent of those polled said taste either had some impact or a great impact on the purchasing decision. By contrast, 73 percent cited price as the key deciding factor.
Meanwhile, the American diner continues to grow more sophisticated. “We’re seeing an ongoing process of interest in food,” Kelly said. “Now you have multiple food channels — a plethora of celebrities. As a result, Americans are interested in trying more interesting stuff. They don’t want the same chicken wings they tried 20 years ago.”
The consumer’s growing comfort with technology also is expected to have an impact on the dining-out experience. Quickservice operators, in particular, have begun experimenting with self-service technology, but even that has begun to reach into other segments of the industry.
California Pizza Kitchen recently said it was testing a tabletop touch-screen device that allows guests to pay their bill, merchandises food and beverages, conducts surveys, and recruits loyalty program members.
“People are just getting more comfortable with technology,” Giandelone said, “and it can be used to help drive check averages in restaurants.
“However, by using it,” he continued, “there also is a risk that the dining occasion becomes just a big transaction versus [the guest] having personal interaction [with a server]. We have to see if one experience takes away from another.”
But while some key questions remain to be answered, observers tend to retain their general sense of optimism about the consumer and the restaurant industry in the long term.
“North America may be a ‘Johnny-come-lately’ to the dining scene,” Kelly said, “but I don’t think we’re going to see that go away. Even fine dining will come back once employment comes back. Dining is a social enterprise, and people will eventually revert to a quality-of-life behavior.”
Giandelone also says he is optimistic about the restaurant industry’s future. “There are already some signs of life,” he said. “People are hoping the economy makes more strides. We’ll continue to see the industry go forward with slow, steady growth.”
Contact Paul Frumkin at [email protected].
