NRA: Food costs become restaurant operators' top concern

While the U.S. restaurant industry is expected to grow this year, operators remain challenged by food costs, building and maintaining sales volumes and the economy.

This list of concerns has shifted slightly since 2009, when the top concern was the economy, at 44 percent, according to the NRA's "2012 Restaurant Industry Forecast" webinar presented today by Hudson Riehle, senior vice president of the research and knowledge group.

Last year, wholesale food prices were up 8 percent, the highest annual gain in more than 30 years. This year, the NRA expects prices to grow by 4 percent.

"From an operator perspective, these continued gains in wholesale food price inflations put pressure on profit margins and make the focus on productivity, efficiency and effectiveness much more important," Riehle said.

Because of this continued inflation, the NRA predicts menu prices to increase 2.7 percent this year, compared to 2.4 percent last year. Commodities most affected by rising costs include:

?Flour, 22 percent
?Coffee, 18 percent
?Eggs, 17 percent
?Beef, 15 percent
?Butter, 13 percent
?Pork, 12 percent
?Sugar, 11 percent
"These are central components of any restaurant menu," Riehle said. "The challenge for operators is to ensure the food quality and service are at a level the consumer expects, and to have more focus on the supply chain and menu mix. You see ample opportunities for operators to examine and readjust the menu mix to tap into growing consumer trends and to manage more escalating commodity groups."

Consumer trends

The NRA partnered with the American Culinary Federation to get a pulse on consumer trends for 2012. The big demands this year revolve around "local" and "healthy."

Specifically, the top five attributes consumers will seek out include locally sourced meats and seafood; locally grown produce; healthful kids' meals; hyper-local (for example, growing produce onsite); and sustainability as a culinary theme.

Nutritional expectations extend beyond the kids' menu, however. According to the webinar, 72 percent of consumers said they are trying to eat healthier when dining out than they did just two years ago.

Also, 72 percent are more likely to visit a restaurant that offers healthier menu options.

Riehle said operators will benefit from being mindful of these and other consumer trends, as pent-up demand remains high for restaurant usage. Between 2007 and 2011, there has been a 10 percent increase in the proportion of adults not using restaurants as much as they'd like.

"Consumers are still discerning and discriminating about what they spend at restaurants, and so operators need to remain top of mind for consumers. You'll see more operators focusing on promotional, marketing and social media opportunities to achieve that top-of-mind reach," Riehle said.

Technology usage up

Restaurant patrons are also increasingly interested in the availability of technology. Nearly four in 10 consumers said they'll be likely to use an electronic ordering system and menus on table computers at table-service restaurants.

About half said they'd use at-table electronic payment options and a restaurant's smartphone app to view menus or make reservations.

In the QSR segment, about 40 percent of consumers said they would place online orders for takeout, use in-store self-service ordering kiosks and use smartphone apps to look at menus/order.

Email and text messaging are proving to be an effective way for restaurant operators to reach their consumers. About three in 10 adults said they would like to receive an email with daily specials, while about one in five prefer texts.

If a restaurant's specials were available on Facebook or Twitter, nearly one-third of consumers say they'd be likely to sign up.

"For restaurant operators to position themselves for the future and attract younger demographics, the integration and utilization of technology is an expectation," Riehle said. "The industry is so diverse now and there is an opportunity for the integration of technology into the restaurant experience that benefits both the operator and consumer alike."

Annual sales, jobs expected to grow modestly

The NRA also predicted that total restaurant industry sales will reach a record high of $632 billion in 2012; a 3.5 percent increase over 2011. This would account for 4 percent of the nation's total gross domestic product.

"In just a year, that gain is the equivalent of adding the restaurant sales from a state the size of Illinois," Riehle said.

Although these gains are modest from five and 10 years ago, the restaurant industry remains an "economic juggernaut." Annual sales from the industry are now larger than 90 percent of the world's economies, and would rank 18th out of 194 countries.

Additionally, the national restaurant count is approaching 1 million, with 970,000 current units open. Also, 48 percent of all food dollars are spent away from home, up from 25 percent in 1955.

From a workforce perspective, the industry will continue to grow its jobs base this year as the country's second largest private sector employer. Overall restaurant industry employment will reach 12.9 million in 2012, behind a 2.3 percent growth rate. This is compared to a 1.3 percent job growth rate in the general economy.

"As our nation slowly recovers from the economic downturn, restaurants continue to be a vital part of American lifestyles and our nation's economy," said Dawn Sweeney, president and CEO of the NRA. "... Restaurant job growth is expected to outpace the overall economy for the 13th straight year, and it's clear the restaurant industry is once again proving to be a significant economic stimulant and strong engine for job creation."

The industry is expected to gain back all of the jobs lost during the recession early this year. The overall economy, however, isn't expected to be back at pre-recession employment levels until 2014.

Segment performances

The NRA focused on the two largest segments' growth during the presentation. Full service will be up 2.9 percent from 2011, while the quick-service segment is expected to grow by 3.1 percent, generating $174 billion compared to $169 billion.

The fastest growing segments include military foodservice, at 6 percent, and retail host, such as grocery stores and convenience stores, at 5.9 percent.