restaurants

NPD: Restaurant Recovery To Start Q3, 2010

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The restaurant industry will not begin recovery until the second half of 2010, according to a new forecast from The NPD Group.

Traffic and sales declines will slow during the year's first half and will turn slightly positive starting in the third quarter, predicts NPD. "And it will take a year after that for the industry to return to where it was prior to the recession," says Bonnie Riggs, the research group's restaurant analyst and author of the report, "Restaurant Industry ... What to Expect When Economic Recovery Begins."

NPD's forecast is based on data from Crest, which has been tracking the food service industry for 30 years. A consumer panel consisting of 3,000 adults and 500 teens are interviewed daily on their restaurant/food service behavior.

The longer and more severe the recession, the longer the restaurant industry's recovery, says Briggs. The industry took two years to recover from the 1980 and '82 double-dip recession, she notes, while it experienced only a couple of quarters of negative traffic as a result of the nine-month 1991 recession.

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The current "Great Recession" not only began two years ago, but has had unprecedented impact on consumer confidence and spending patterns, Briggs points out. In addition to high unemployment that has contributed to lowest-recorded consumer confidence levels, consumer spending on out-of-home dining has been affected by tightened credit, declining grocery prices and increased saving, she points out. Confidence levels and unemployment, in particular, will have to begin to show improvement before consumers begin to resume former eating-out habits.

Restaurant traffic has been in decline for five consecutive quarters, according to NPD's tracking. In the latest quarter, ending in September, overall restaurant traffic declined by 4%, as did traffic in quick-serve restaurants and midscale restaurants. Casual dining formats' traffic dipped 5%.

Non-commercial segments that were particularly affected by unemployment, such as business and industry, vending and lodging, have also suffered. Business and industry food service traffic for the year ending in September was down 16% versus a year ago.

But the bigger concern is that for the first time in NPD's tracking history, sales are also down -- by 2% in this last quarter, for example. "In past recessions, restaurant operators have been able to make up for traffic declines by increasing the size of checks or the cost of the meal. This time, they're having to offer deep discounts just to stay in the game," notes Briggs.

However, restaurants have always been able to raise their prices back to prior levels following a recession, and this one should be no exception in that regard, according to NPD.

After a recession, restaurant operators raise prices gradually, in part by "distracting" consumers from pricing deals with different marketing emphases, such as a new menu or service offerings, explains Briggs. "Also, consumers are pretty savvy -- they know that these prices can't last forever, and that the lower prices often came with trade-offs, like smaller portions."

 

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