Consumer Trends

Foodservice Brief — December 2012

Looking Ahead to 2013 and Beyond

Our updated forecast of demand for restaurant prepared meals/snacks projects a slight retrenchment in restaurant visits in 2013. While demand declines through 2009 and 2010 leveled off in 2011 and then inched up in 2012, continued high unemployment and rising food inflation hinder progression of visit recovery.

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Still, parts of the industry will experience real growth in 2013. Here are some of the behaviors and activities that will generate higher levels of traffic next year and beyond.

Look for next-generation deals value perceptions waning on some longtime offers

The prolonged recession resulted in consumers reducing restaurant visits and exerting control on their spending when they did visit. Incentives/deals increased in importance as a visit driver during the early years of the recession. Increased deal visits offset some of the non-deal traffic losses that occurred as consumers reduced their overall spending levels.

However, that method of building traffic has slipped over the past two years. Two of the most frequently used deals are largely responsible for the decrease in deal traffic: combo meal deals and value menu item offers. It isn’t so much that consumers have reduced their ordering of combo meals or foods on the value menu. Rather, it appears they are considering the price as a standard – consumers no longer perceive them as deals or special offers. Considering the forecast of retrenched visiting in 2013, we anticipate operators again will need to focus on attracting customers with value-oriented promotions. Marketing strategies to make those offers fresh and convey enhanced value will be critical. Some of the special offers requested most often by consumers are coupons and frequent visitor rewards. Perhaps the next “$5 Footlong” will tie into a well-crafted loyalty program.

More menu engineering will be implemented to manage margins in light of cost increases

Last summer’s drought and its effect on crops, feed for livestock, and more means restaurants will face additional cost pressures in the year ahead. Food costs were increasing even before this dry spell. Wholesale food costs increased 8 percent in 2011, the largest jump in more than three decades. Analysts expect overall food costs to rise anywhere from 5 percent to 20 percent by the start of 2013. Add that jump to high energy costs and the continuing sluggish economy, and the result will be considerable pressure on restaurant operators to carefully manage their menu prices. Now pile on the degree of importance consumers now place on price! Avoiding direct pass-through of costs on to consumers will be the challenge. More menu engineering will be required to manage margins in light of cost increases.

Considerations include optional portion sizes, new and different items that appeal to consumers and meet profit needs, and providing choices between premium products and lower-priced meals.

Gluten-free is a trend worth noting

Increasingly, consumers are showing interest in gluten-free foods. Our Dieting Monitor has shown steady growth in the percent of adults who identify gluten-free foods as important to them. Nearly 30 percent of all adults claim they are cutting down on or avoiding gluten completely, a percentage that has increased over the past several years. Additionally, as more attention is given to the benefits of a gluten-free diet, it is likely restaurant operators will be willing to meet requests for gluten-free menu items. While this trend appears strongest at more upscale, full service restaurants, gluten-free menu items can also be found on many QSR menus.

Restaurant websites continue to be the key social media connection

Using smartphones and the Internet to obtain information on restaurants is growing rapidly. Right now, 5 percent of industry traffic is influenced in some way by applications or websites visited. Upscale restaurants benefit most – the Internet is twice as likely to influence a visit to an upscale place as it is to affect a QSR decision. Deals and special offers, followed by menu detail, are the most-used online features that influence restaurant visits. The most popular website for information on or about restaurants is the restaurant website itself — pointing to the need to keep the site fresh, current, and appealing as the place to introduce new products and describe promotions.  Watch for expansion of smartphone use for placing orders and making check payment easier. All of this means digital marketing is a necessity for all.

Boomers and seniors will continue to support industry traffic, particularly at the morning meal

The morning meal is the only occasion that has fully recovered losses experienced through the recession.  That recovery was driven entirely by increased visits from older Baby Boomers and seniors. These two consumer groups have not suffered the employment losses of those in younger age groups. Further, many are staying in the labor force longer and have continued and growing needs for the convenience of restaurant-prepared meals. Older consumers today use restaurants more frequently than older consumers of the past. Trends in their visit habits over the past five years point to continued visit growth to restaurants in general and to the morning occasion in particular.

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Greater targeting among ethnic groups will be required

Hispanics now account for 16 percent of the U.S. population. This group’s growth is expected to continue at a pace exceeding that of the country’s overall population. Hispanics’ restaurant use — particularly among those who are Spanish language-oriented – differs from overall restaurant use among the general population. The segments likely to share in the demand supported by this population include QSRs, morning meals, combo meal deals, and products like burgers, Mexican food, and juice. A number of chains and restaurant categories have a head start in marketing to this segment. Others have been slower to address U.S. Hispanics’ needs. Notably, full service restaurants tend to be very weak with this market. To reverse this tide, full service operators will need to accommodate (better yet – embrace) the cultural and language differences exhibited by this group.

While still relatively small, growth of the Asian population in the U.S. outpaces overall population trends. The U.S. Census shows the Asian population has increased 46 percent over the past 10 years; Asians now represent 5 percent of the U.S. population. Their restaurant usage habits reflect their demographics — they have higher incomes and higher education than other groups, and they prefer full service concepts and gourmet coffee/tea outlets. Aside from Asian foods and rice, Asian consumers are more likely than other groups to order healthy types of foods like soup, fish, grilled chicken sandwiches, shrimp, fruit, and vegetarian sandwiches/entrees.

Increasing influence of legislative and public pressure on consumers’ restaurant behavior

A growing number of legislative and public health initiatives, on both the national and local levels, are intended to affect restaurant consumers’ ordering and eating behaviors. Examples include posting calorie counts on menus, limiting the size of certain beverages, and toy and calorie count limits on kids’ meals. Whether these efforts actually have an impact on behavior is an open question. Consumers themselves will determine their eating habits. While it remains to be seen whether these actions change consumer behavior, they certainly will influence restaurant operations and profit margins.

Casual-plus becomes the new fast casual of the casual dining segment

Some new restaurants and small chains are emerging in the space between casual dining and fine dining. These concepts do not provide the white tablecloths and formal service of fine dining establishments. Instead, they offer a more casual atmosphere, but with a more upscale feel and a somewhat higher price point than current casual dining chains. They are fresh and relatively new, and they appeal to those seeking a pleasant dining experience while still resisting the cost of fine dining. Examples of operators in this space include P.F. Chang’s, Brio, Cheesecake Factory, and J Alexander’s. We expect continued development of these types of units, which will appeal to consumers who seek something newer and fresher than casual dining at price points they still find reasonable and affordable.

Fast casual will face increased competition

As has been the case for the past several years, we expect continued unit growth and market share capture by fast casual restaurants. This is not a new trend, but it is likely to continue into 2013. These concepts provide a fresher, newer, cleaner environment than older establishments, and their  foods are perceived to be healthful and offered at affordable prices. However, we anticipate fast casual will face increased competition as many traditional restaurant operators develop fast casual concepts to capitalize on this growth opportunity. By the same token, fast casual offerings are influencing those of traditional QSR as they remodel their units and develop new menu offerings.

Learn more about what to expect in 2013. Contact Bonnie Riggs at 847-692-1767 or emaill bonnie.riggs@npd.com.

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