NRA: Economy pressures consumers, but restaurants eye opportunities

Consumers emerging from the recession are demonstrating significant levels of pent-up demand for dining out, the lead economic analyst for the National Restaurant Association said Wednesday during an online presentation of the trade group’s 2012 Restaurant Industry Forecast.

As a result, he added, there will be opportunities in 2012 for operators who can leverage food and beverage trends and emerging technologies.

The restaurant industry overall is expected to register “modest gains” in sales this year, said Hudson Riehle, the senior vice president of the NRA’s research and knowledge group.

At the same time, it is projected to enjoy more robust hiring growth in 2012 than the economy as a whole, he added.

Riehle said the foodservice industry is expected to post $631.8 billion in sales this year, up a nominal 3.5 percent, or 0.8 percent adjusted for inflation, over last year’s figure. That total reflects year-over-year growth of $21 billion.

The foodservice industry “has become an economic juggernaut” in the United States, he said, with the $632 billion in sales restaurants are expected to ring up in 2012 representing 4 percent of the gross domestic product.

Moreover, he said, the industry would exert an estimated total impact in 2012 of $1.8 trillion, when calculating sales, food and beverage purchases throughout the supply chain, and thousands of jobs in other industries that support restaurants.

Because restaurants are expected to add jobs at a faster rate than the economy as a whole — an estimated 2.3 percent in 2012, compared with 1.3 percent for the economy at large — the foodservice industry is expected to reach its pre-recession peak workforce by 2014.

But until the country reaches its full pre-recession employment rate, consumers still are expected to limit their restaurant visits and manage their spending, Riehle said.

“When individuals are employed, it creates more demand for convenience,” he said. “There always has been a strong correlation [between] household incomes and restaurant sales.”

Bearing that moderate growth in mind, Riehle identified some challenges likely to face restaurateurs in 2012, as well as some opportunities for solutions.

Food costs, consumers under pressure

While the 4-percent increase in food costs projected for 2012 is only about half of the 8-percent spike registered last year — the highest annual increase in 30 years — it still will pose problems for operators, Riehle said.

“From an operations perspective, these sizeable gains will put pressure on restaurants’ pretax profit margins and will make the focus on productivity, efficiency and effectiveness more important,” he said.

Operators responding to the NRA’s survey for this forecast identified food costs as their No. 1 concern heading into 2012. The economy had been their prime concern going into 2011, but the number of operators reporting that have been decreasing. Levels of concern about maintaining sales volumes fell from last year to this year, and worries about recruiting and retaining employees have been consistently very low throughout the recession.

Acquiring and retaining customers will remain difficult in 2012, Riehle said, as consumers surveyed by the NRA reported that they have cut back on dining out more than they would have liked. About 40 percent of respondents said they are not patronizing restaurants this year as much as they want to, which is a 10-percent increase from last year.

“What this pent-up demand means is that from an operations perspective, consumers still will be managing [their] check this year and beyond,” he said. “If their cash-on-hand situation is constrained, they’re becoming more discerning in decisions about how much money to allocate to restaurants.

“It behooves you to remain top of mind in consumers’ decisions, which is why more operators report that they’re increasing efforts in promotions, marketing and social media.”

Opportunities in 2012

The NRA surveyed about 1,800 chefs to identify the most popular food and beverage trends heading into 2012, and the themes of local sourcing and nutrition rose to the top, Riehle said.

“Not surprisingly, consumers are adjusting their dining behavior,” he said, “with 72 percent saying they’re trying to eat healthier when dining out, and 72 percent saying they’re more likely to visit a restaurant that offers locally sourced ingredients.”

More Americans are using technology to interact with restaurants as well, the NRA’s data found.

About 60 percent of Americans view restaurant menus online, up from 31 percent a few years ago. Significant numbers of consumers, especially those 45 years old and younger, reported that they would use smart phones and mobile apps more to view menus, order meals and make reservations. Half of those diners between 18 and 34 years old would use social-media deals at restaurants if offered, and nearly 70 percent of that demographic would be comfortable using electronic-payment terminals at their tables.

“For operators to position themselves for the future and attract younger demographics, the utilization of technology is an expectation in their experience,” Riehle said. “That doesn’t mean that the restaurant industry won’t be a service industry anymore. It just means that consumers’ requirements are so diverse, there will be opportunities for the integration of technology into the restaurant experience that benefits both operators and consumers alike.”

Riehle concluded his presentation by pointing out operators’ willingness to invest in meeting these consumer demands. In the NRA’s Restaurant Performance Index survey for December 2011, more than 50 percent of operators surveyed said they would make a significant capital expenditure in the next six months — the highest level of that expectation in four years, Riehle noted.

“What you see, which isn’t surprising given consumers’ pent-up demand, is that operators have their own pent-up demand for capital expenditures,” he said. “As the environment continues to improve, they’ll step up their capital purchases to make for that past several years.”