NEWARK N.J. The punishing macro-economic environment will provide the foodservice industry this year and next with two consecutive years of sales declines for the first time, according to the latest data from Technomic Inc.
Foodservice sales this year will drop 3.8 percent on a nominal basis, which includes the assumption of 2.5 percent in menu-price inflation, as the industry was hard hit by slashed consumer spending during the “great recession.” The outlook for 2010 includes the continuation of numerous challenges for restaurant operators, including a still depressed consumer and a more costly regulatory environment, and sales are expected to fall again, although at a lower rate than in 2009.
The result is the first two-year decrease in industry sales since Technomic began tracking results in the 1970s.
“Expect continued slower traffic,” Tim Powell of Technomic said at the market research firm’s Forecast and Outlook presentation Thursday in Newark. “A lot of people are not going to feel good about going out to eat. There is a ways to go before we see a rebound.”
The Technomic 2009-2010 U.S. Forecast and Outlook, sponsored by the International Foodservice Manufacturers Association, or IFMA, shows that total foodservice industry sales are expected to fall 3.8 percent this year to $588.50 billion. That projection assumes an inflation rate of 2.5 percent for the year.
Projections for 2010 include a 0.8-percent nominal decline in total foodservice sales, which reflects an inflation rate of 1.5 percent, as forecast by Technomic.
Revised results for 2008 showed a 0.7-percent nominal uptick in sales.
The three years of 2008 through 2010 mark the weakest time frame in foodservice history, Technomic executives said. During that period, not only have same-store sales slowed for nearly all restaurants -- first at casual-dining concepts and now even at quick-service players -- but the total number of locations decreased as well. Once an industry driven by strong unit growth, the U.S. restaurant landscape will have contracted 3.8 percent, reflecting the closure of 21,425 units between 2008 and 2010, to total 549,555 restaurants, Technomic research showed. Almost 84 percent of those closures came from the full-service segment.
Topping the list of reasons behind two years of nominal sales declines, however, is the pressured U.S. consumer, who is challenged by job losses, reduced income and fears of a long economic recovery. Consumers started to cut back on dining out as far back as 2007 and plan to continue, research shows.
“We’ve been in a recession for two years, and unemployment is expected to rise until 2011,” said Janet McCullough of Technomic. “That gives people a long time to get in that mind set of cutting back ... after economizing for a while, it will take time to go back.”
Restaurants operators agree with the dismal sales picture, according to a Technomic survey of 727 operators across all the foodservice sectors. Less than half of survey respondents, or 44 percent, told Technomic they expect their own businesses to post an increase in sales in 2010. That is down from 62 percent who said they expected sales growth at this time last year.
To combat these trends, operators will continue to cut costs, focus on value, work to enhance customer experience through service and ambiance and continue to innovate, whether via new menu items or expanded daypart service.
“Innovation is still a key weapon,” McCullough said. “Supplier support will be critical -- it is not business as usual.”
Cited winning strategies included barbell menu pricing, seen at numerous quick-service chains like Burger King and Taco Bell; readjusted supply chains, like the move to consolidate vendors completed at Ruth’s Chris Steak House; or new kids' menus, like the one introduced at P.F. Chang’s China Bistro.
While sales traction proves challenging, one silver lining for operators is the expectation of increased profit. Many restaurant companies have spent this year cutting costs, evaluating expenses and improving efficiencies. Those actions have helped drive profits, Technomic said. About 51 percent of surveyed operators said they expect their profit to grow in 2010, up from 39 percent who were optimistic on profit growth at this time last year.
When adjusting the projected foodservice sales declines to remove menu-price inflation, total foodservice sales are expected to fall 6.1 percent this year and 2.3 percent in 2010. The two-year string of reduced real sales, which assumes inflation of 2.5 percent in 2009 and 1.5 percent in 2010, follows another two-year string of falling real sales in 2001 and 2002. Technomic officials said they did not expect a return to real, positive growth until late 2011 or early 2012.
As has been the case for the past two years, full-service restaurants, which include casual-dining and upscale-dining concepts, will continue to post the largest sales losses. In 2009, full-service segment sales are expected to fall 8 percent on a nominal basis and 10.2 percent on a real basis, to $165.70 billion, according to Technomic. In 2010, full-service segment sales are expected to drop 4.1 percent on a nominal basis and 5.5 percent when backing out menu-price inflation.
Limited-service restaurants, mainly quick-service brands and fast-casual concepts, are expected to see a flat sales performance in 2009 on a nominal basis, and a 2.4-percent decline on a real basis, to $189.40 billion. In 2010, limited-service restaurants are expected to post a 1.5 percent nominal sales growth and a flat real growth.
Despite sales and profit performance, operators told Technomic they are most concerned with cost issues, food safety and the increase in government regulation of foodservice. Most operators, or 46 percent, said they expect at least some indication of recovery in their own businesses at some point next year.
Contact Sarah E. Lockyer at [email protected].
