Even as macroeconomic indicators point to recovery, experts say restaurant operators shouldn’t expect their customers to start spending freely—or ordering expensive menu items—anytime soon.
It will take more than economic growth to restore the wealth and sense of well-being that have been lost during the recession, they note, adding that until consumers feel somewhat flush they will continue to be frugal in their dining-out habits.
“The past couple of decades saw a big expansion of wealth, and this recession has seen a significant reversal of that,” says David Morris, senior restaurant analyst for the research firm Mintel.
Morris points to Federal Reserve data from the second quarter of 2009 indicating American household wealth grew by $2 trillion. That may sound like a lot, “but it would have to go up another 20 percent just to reach pre-recession levels,” Morris says.
That means that customers who have traded down in where they eat and what they order are not likely to trade up again until they have seen more of their wealth restored.
“I would be very hesitant to expect a significant change in consumer behavior with regard to restaurants into 2010,” he says.
For that reason, consumers are likely to continue foregoing the high-margin items that move many restaurants from the red to the black.
“Mostly, we’re not ordering the add-on items,” says Bonnie Riggs, restaurant industry analyst for The NPD Group, a market research firm that surveys consumers about their spending and eating activity.
Appetizers, desserts and beverages are being skipped, and burgers and sandwiches are being ordered instead of pricier entrées, Riggs says.
In the April-to-June quarter of 2009, orders of snacks were down by 7 percent, side dishes were down by 5 percent, main dishes were down by 4 percent and beverages were down by 3 percent, she says.
“What’s up is burgers and sandwiches, and that’s about it,” she notes.
Riggs adds, however, that people question during every recession whether consumers will ever return to their pre-recession, free-spending ways, and following each recession over the past 30 years, consumer spending has seen a strong rebound.
“But I think it’s going to take much longer this time around,” Riggs says.
“We, as consumers, have just lost too much in terms of our wealth, the equity in our homes, all of those things,” she says. “I really do think it will be very cautious spending and consumers will be looking for the best value for the money.”
She’s forecasting weak traffic for another six to nine months, and then at least a year after that to recover to pre-recession activity.
“I don’t think we’re going to return to conspicuous consumption anytime soon, if ever,” Riggs says. “I think, through all of this, our value system has changed permanently.”
But that doesn’t mean that everything needs to be cut to the bare bone. Recent NPD surveys of consumers have indicated that it’s not the steepest discount, but the best value proposition, that will win them over.
The study found that, when it came to food, “value” was seen as food that was fresh, good tasting and reasonably and affordably priced.
“If it measures up to my expectations, that’s OK,” she says, summarizing customer attitudes expressed in the survey.
Nonetheless, deals, which have proliferated during the recession, will continue to have a place in the foodservice landscape. NPD found in a separate study conducted this summer that restaurant diners who have cut back on dining out are on the hunt for deals and will continue to seek them out in the foreseeable future.
Namely, consumers listed discounts, freebies, dollar menu items and a variety of price offerings as the sort of enticements that would lure them back to restaurant dining rooms.
Morris says restaurants have to “pay very close attention to wind the lifestyle benefit into the decision to dine out.”
Specifically, he says, that means giving customers something they can’t get at home and paying particular attention to the demands of women, who are increasingly becoming the heads of households or budgetary decision makers.
Steven Walkerwicz, vice president of on-premise customer marketing for Pernod Ricard USA, says those attitudes about value were expressed before the recession, and with economic recovery customers will return to spending a bit more for what they see as better products.
“The days of paying for what is not providing value are going to be few and far between,” he says, “but the move, in cocktails, for example, toward fresh ingredients, is just going to position the industry better to provide that cost-value relationship that customers are looking for.
“We’re pretty optimistic, and the numbers show, that most customers will go out more often than they currently are once the economy turns around,” he says.— [email protected]
