• by Karlene Lukovitz  @KLmarketdaily, July 7, 2010

"Recovery" is a misnomer for the current state of the restaurant industry, according to one veteran industry researcher/consultant.

Given the hard facts, "recovery" is accurate only in the sense of "moving a patient from critical to serious condition," writes Joseph Pawlak, VP for food/foodservice industry consultancy at Technomic, in the company's newsletter. "Things are looking better, but we are hardly out of the woods."

Pawlak points out that unemployment rates are still near double digits, with no short-term turnaround expected. In fact, given how critical employment rates are to the health of the industry, June's lackluster figures (unemployment down to 9.5% from 9.7% in May, but jobs down by 125,000 and long-term unemployment stuck at 6.8 million) make the current reading for the industry somewhat less optimistic than earlier this year, Pawlak tells Marketing Daily.

The recent "improvement" in same-store sales is actually a slowing of decline, rather than a return to growth, he stresses. In his viewpoint, he notes that the foodservice industry lost nearly 10% of its real value in 2008 and 2009, and if it grew at a 1.1% real annual rate (the average for the past two decades), it would take nine years to regain those losses. Annual real growth of 3% would be needed to get back to the industry's 2007 peak within three years, and that rate has been seen only four times in the past three decades, Pawlak adds.

Even with traffic gains, it will take considerable time for chains to return to peak volumes, he notes. Comparing the first quarters of 2007 and 2010, major chains' sales volume losses have been substantial: Morton's, Capital Grille and Ruby Tuesday are down about 20%, Outback down 13%, Chili's down 9%, and Starbucks (despite a very strong first quarter this year) is down 6%.

The real growth rate will decline again in 2010, which means that this year actually will be a bit worse than last year, Pawlak points out.

On a seemingly more positive note, Deutsch Bank analysts recently said that restaurant chains' food and labor costs are stabilizing and that "despite some choppy sales trends," they expect the largest chains' second-quarter performance numbers to be at least on track with guidance.

The analysts put a buy rating on McDonald's, Burger King, Wendy's/ Arby's Group, Chipotle Mexican Grill, Buffalo Wild Wings and Panera Bread, and a hold rating on Yum Brands.

Pawlak agrees that the ability to better control food and labor costs is one of the bright spots for the industry, although he adds that many chains are using freed-up cash flow to support discounting, which may yield little or no net financial gain even if it increases traffic.

Bottom line: A full return to normalcy is a long way off, in Technomic's estimation.