While consumers may be facing economic uncertainty, they are approaching their spending differently than during in the Great Recession of late 2007 to 2009, according to a new report from AlixPartners.
Molly Harnischfeger, a director in New York-based financial advisory and consulting firm’s restaurant, hospitality and leisure practice and an author of the report, “When the Wallet Tightens on the More Experiential Customer,” said in an interview Thursday that consumer patterns have shifted when compared with sentiment polling during January 2009, the heart of the Great Recession.
“We did a compare/contrast of tactics consumers plan to use to reduce restaurant spending,” Harnischfeger noted. “In 2009, trading down to less expensive restaurants far surpassed reducing visits/frequency to restaurants to manage spending. Today, we have the exact opposite spending, where reducing visits significantly exceeds trading down.”
AlixPartners plans to publish another report in the second half of the year, but messages for operators were clear after a positive Omicron-comparison first half, Harnischfeger said.
“What we're seeing in the sentiment over the past year is really a stacking of discretionary spending pullbacks against the consumer,” she said. “Last May, they suggested that retail was the first place they planned to hone in on their discretionary spending. I think we're seeing a lot of that play out in recent earnings.”
The second place was restaurants, Harnischfeger said, followed by travel and leisure.
“That pullback in restaurant spending likely will happen relatively soon, if it’s not already happened,” she added.
As opposed the recession of a dozen years ago, which provided fertile ground for the development of the fast-casual segment, the consumer now is “fundamentally different,” Harnischfeger said.
“This is a consumer that's more experientially focused,” she said, “a lot of that driven by COVID [and] a lot of that driven by forced having to not eat out at restaurants, not have their travel and leisure.”
Surveys found consumers have become better at and more accustomed to cooking at home, determined what is essential in their spending (and leading to a rise in awareness of sustainability) and deepened a desire for indulgence, she said.
Thus, Harnischfeger explained, in a possible recession “the winner and losers are going to be more nuanced and more specific within segments — and a lot of that has to do with this consumer that's more experiential and more discerning on the value of what they're getting for their experience.”
The Great Recession’s trade down from casual dining to fast casual might not offer the same experiential value, she said.
“What we're seeing,” she noted, “is a little bit of pullback potentially on delivery or third-party because of ancillary fees and more of a pickup opportunity.”
Restaurant operators were also facing other economic pressures, with 49% of independent restaurants unable to pay the rent in April – a 15% jump from the month prior, according to data from Alignable.
And a Bank of America Survey of business owners found 72% said they were concerned about a potential recession.
To prepare for such economic uncertainty, Harnischfeger said the AlixPartners report summarized five areas where restaurant operators could prepare for choppy waters.
Those areas include investing in digital infrastructure to help grow sales, engineer menus to improve margins and reduce complexity, reduce the costs of new buildings and remodels, improve the supply chain to return margins to operations and offer “execution excellence.”
“From an execution excellence standpoint,” she said, “it's really about across the entire organization,” including the corporate staff as well as the in-restaurant workers.
In the near term, the report added, spending is creating “an unpredictable view of dining patterns.”
“The changed consumer will likely behave differently than in past periods of financial distress and suggests strong interest in robust dine-out experiences,” the report noted.
AlixPartners noted opportunities for three major segments, from casual dining with quick service.
For casual-dining, those include:
“Consumer sentiment suggests strong guest interest in prioritizing restaurant dollars against meaningful dine-in experiences, even if spending more per occasion but less frequently; operators’ optimization and growth of the off -premise channels cannot come at the cost of delivering a consistent, fulfilling in store experience,” the report noted.
“Many brands who went dark on advertising in the pandemic, are going to rapidly come back online creating both a shared benefit across the sector in driving casual dining more top of mind but also generating more aggressive share wars within the segment,” it said.
In fast-casual, AlixPartners warned that growth had depended heavily on Millennials, who were being buffeted by the climbing costs of home ownership and families.
“Some brands may need to better evaluate offerings to satisfy changing dynamics and/or further diversify core [the} target customer base,” the report noted.
And the quick-service segment “cannot lose sight of premium opportunities,” the report noted. “The pandemic engaged higher-income consumers with QSRs due to off-premises efficiency; as recessionary pressures mount and delivery declines, these guests may be well positioned to increase engagement with QSR and will seek offerings to rival fast-casual competition.”
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