Restaurants May Enjoy Minimal 2010 Gains

MATTHEW ENIS

WASHINGTON — After a very difficult 2009, the U.S. restaurant industry is expected to be on the mend this year, according to the National Restaurant Association's annual industry forecast.

The report projects sales of $580 billion for the restaurant and foodservice sector during the coming year, up 2.5% from 2009. Although this figure would represent a new sales record for the industry, it would also represent an inflation-adjusted decline of 0.1% for the year, after declines of 1.2% in 2008 and 2.9% in 2009.

“The past two years have been a very challenging time for our industry. While there are still substantial challenges ahead, we are encouraged that the outlook is improving,” Dawn Sweeney, president and chief executive officer of the National Restaurant Association, said in an announcement.

Catering operations, quick-service restaurants and “retail-host” restaurants are expected to be bright spots for the industry in 2010. In fact, the report projects that the retail-host segment — which includes supermarket prepared-food departments, as well as foodservice operations in convenience stores and drug stores — will enjoy sales growth of almost 5%.

Prepared-food departments still represent value to consumers, which has helped them weather the recession better than most other sectors of the foodservice industry, noted Bob Goldin, executive vice president of Chicago-based research consultancy Technomic.

“You don't have to tip, you can eat really well, and you have the ability to control your own portions,” he explained. “And, importantly, there are a number of supermarkets who have really improved their prepared-food departments … consumers are responding.”

Citing concerns over continuing job losses, underemployment and the weakness of the economic recovery, Technomic last week revised its own 2010 U.S. foodservice industry forecast downward. The company expects a total sales decline of 1.6% this year, instead of the 0.8% decline it initially projected. Forecasts for most foodservice segments remained unchanged, but analysts said the landscape had started looking rockier than anticipated for QSRs, business dining and vending.

“It's a tight economy and it's still affecting everything,” Goldin said. “There's a reluctance to spend across the board, whether it's for a $1 double cheeseburger or a $50 steak.”

But Technomic remains bullish on supermarket foodservice, forecasting 2.2% growth in 2010, up from its projection of 1.3% growth in 2009.

Although there has been some general, across-the-board improvement in the quality, presentation and marketing of prepared food in supermarkets during the past decade, all foodservice programs are not created equally, Goldin said. The companies that are enjoying real growth in this area tend to be those that have been investing in these departments for the past several years.

Citing examples such as Wegmans, H-E-B Central Market and Whole Foods Market, Goldin noted that “it's very company specific. The companies that have been doing well have continued to do well. They adjusted. They've innovated, they offer unique items and they've created an aura around it.”

Offering diners and shoppers a perception of value will remain important for operators in most sectors of the foodservice industry during the next year, according to the National Restaurant Association's forecast.

Until personal disposable income increases and unemployment levels fall, consumers will still be under economic strain, so “to help spur consumer confidence, operators must take steps to provide value to guests,” the report reads. It suggests that restaurant owners try frequent-dining or other customer loyalty programs, as well as email marketing tools, to let customers know about promotions and specials.

“Actual or perceived value is very important now,” Goldin agreed. He added that prepared-food departments should continue offering meal deals and specials, and on a selective basis, “sell hard on the value relative to restaurant meals.”

Several other key trends detailed in the National Restaurant Association's report may apply to supermarket prepared-food departments as well.

“Smart operators will look to build sales by marketing healthful menu items and responding to consumer demand for convenience and variety,” the report reads. “Growth opportunities include delivery and other off-premise options, cooking classes and other interactive activities, and new media to reach new and returning guests.”

Understanding how to communicate with customers using new media, such as social networking and video sharing sites, such as Facebook and YouTube, will become more critical to all foodservice operators during the coming year, the report notes.

“It's clear that ‘word of mouth’ has moved online, and more consumers use the Web to browse menus, make reservations and get recommendations from other diners.”

And, the report suggested that operators should continue to focus on healthy eating trends. According to the association's consumer research, 73% of adults claim that they are trying to eat healthier when dining out than they did two years ago. And, more than half of the items listed in the association's annual “What's Hot” survey of professional chefs were health-related, indicating that restaurants are already trying to address growing demand for healthier foods.

Overall, the report is optimistic about the coming year, noting that about four out of five U.S. consumers say that going to restaurants with family and friends is an opportunity to socialize and is a better use of their time than cooking and cleaning up. The past two years have created pent-up demand for these dining experiences, the report argues.

“This year has its challenges, but the future is positive,” it reads. “Consumers forced to cut back on spending in the past two years continue to place a priority on dining out.”

During the past two years — in 2009 especially — restaurants endured declining traffic as consumers looked for ways to conserve money in the face of job losses or economic uncertainty. To some extent, supermarkets and their prepared-food departments benefited as those consumers dined out less and ate at home more often.

Now, as the economy slowly improves, it is difficult to predict how consumers will react. When jobs return and disposable incomes rise, will shoppers return to their free-spending ways, or has this downturn inspired a new sense of frugality?

“More prudent spending on the part of consumers is going to be a painful reality for all retail sectors for the foreseeable future. Past patterns of industry growth [are] unlikely,” Goldin said.

But, despite the prolonged economic gloom, and despite their success relative to other segments of the foodservice industry during the past two years, prepared-food departments will need to continue improving and innovating if they wish to grow and remain relevant this year and beyond, he added.

“This isn't the time to coast. New investment will not necessarily pay dividends immediately, but the bar is being raised. Invest in continual departmental improvements relative to assortment, freshness and merchandising.”