News
Study: Diners expect to spend 4% less on average meal
May 4, 2010
Though dining-out frequency in the U.S. restaurant industry is showing signs of stabilization, rising food costs, liquidity issues and a level of consumer frugality still threaten the industry's fledgling recovery, according to a new study by AlixPartners LLP, a global business-advisory firm.
According to a March consumer survey, diners say they expect to spend about $11.60 per meal at restaurants over the coming 12 months. That's down 21 percent from the $14.70 per meal consumers said they spent in pre-recession 2008 and down about 4 percent from the $12.10 in average meal price consumers say they spent in 2009.
"This continuing price sensitivity illustrates a chasm between pre- and post-recessionary consumer expectations," said Andy Eversbusch, a managing director at AlixPartners and head of the firm's Restaurant & Foodservice Practice. "It is, by some measures, due to what we dub the 'Subway Effect,' which has led to a jump in the number of consumers who anticipate spending $5 or less per out-of-home meal. In our survey, 16 percent of consumers expect this price range to represent their average meal spend, up from 12 percent last year."
Despite tightening wallets, consumers are more likely to go out to restaurants in 2010 vs. last year, indicating some stabilization in at least traffic. According to the poll, 30 percent of the 1,000 U.S. consumers surveyed say they anticipate eating out less frequently, down markedly from the 48 percent who felt this way last year. Some 58 percent say they will eat out about the same, up significantly from 40 percent in the 2009 poll. About 12 percent say they will eat out more, on par with last year's survey.
AlixPartners' comprehensive study of the restaurant industry examined the financial stability of the industry's major sectors, including quick service, fine dining, fast casual and casual.
"Despite some stabilization of late, the restaurant industry is by no means out of the woods," said Eversbusch. "Sales will continue to be pressured by growing price sensitivity among virtually all consumers, regardless of the types of restaurants they visit. Meanwhile, we predict that food commodity prices, whose record lows provided a 'pseudo bailout' to the industry in 2009, will rise substantially going forward, so the operating efficiency of many restaurant players will be severely tested."
What are they waiting for?
Before consumers increase their average spending on dining out, they say they want to see signs of economic recovery and better value for their dollar, according to AlixPartners. Though the frequency of restaurant trips is expected to increase overall, those who anticipate dining out two to six times a week dipped to 23 percent in this year's poll, from 27 percent last year.
Another emerging factor affecting fast-food demand is the competitive inroad being made by convenience stores. Some 9 percent of consumers cite the availability of ready-to-eat meals from such stores as a reason for dining out less, as opposed to the negligible number of consumers who said that in 2009. According to the study, food service is the fastest-growing and most profitable category for convenience stores today. (Read also, Quiznos launches Operating Partner Program orC-stores capitalize on foodservice opportunities.)
Among consumers who plan to spend less in restaurants this year, the vast majority cited coupons and the selection of less-expensive eateries as the most popular ways to save money when dining out.
The study also examined the industry's financial stability and balance sheets. Sales growth for the industry hit a nadir in September 2009, when year-over-year sales dipped 1 percent. Total industry sales for full-year 2009 were $566 billion, down from $570 billion in 2008. According to industry estimates, industry sales are expected to rise to $580 billion this year.
Earnings were also hard it in 2009. QSRs, in fact, saw their first decline in earnings this decade, with a 48 percent drop. Fast casual and casual dining saw EBITDA drops of 27 percent and 26 percent, respectively.
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