Americans this year will cut back restaurant meals by a degree not seen since the economic malaise late in the term of President Jimmy Carter, according to a new study.
The slowdown of 2001 has hit the restaurant trade, parts of which had till recently escaped the economic slump.
New evidence of the dining decline: The average American will eat out 137 meals this year, down four meals (or 3%) from 2000, according to an annual report on the industry set to be released in October by market researcher NPD Group. That's the first decline since the economic downturn of 1989 and 1990. And it's the biggest one-year decline since 1979, when Mr. Carter was president.
"It's hardly noticeable unless you run a restaurant," said Harry Balzer, VP, NPD Group. "But we haven't had a drop in the last 22 years like this."
To be sure, this is not a decline of the magnitude many industries have seen this year. And the dining dip follows a decade-long restaurant boom. Restaurant visits this year are back to 1998 levels but still are a full week's worth of meals above the dine-out level of the mid-'80s, according to NPD's 16th Annual Report on Eating Patterns in America.
But empty tables are a problem for restaurants. That's putting pressure on restaurant chains to shake up marketing and advertising to deliver the customers.
Even in the sluggish market, spending at restaurants this year is expected to break a record. It's estimated that U.S. consumers will spend $399.2 billion at 844,000 restaurants in 2001, according to the National Restaurant Association. That's up 69% from the $239.3 billion spent in 1990, and more than three times the $119.6 billion spent in 1980.
Spending is rising mainly because of moderate price increases. The problem is that this year people are dining out less frequently, and that means less traffic and more empty tables.
"It is a little bit of a sobering picture," said restaurant consultant Bob Goldin of Technomic, who was surprised by the rate of decline but not by the trend. "Consumers are being more cautious in their spending on everything," he said. While he expects food-service industry growth to outpace home preparation, the rate will be a modest 2%.
Up until now, most restaurant marketers have seemingly been able to stave off the ills other sectors such as retail have suffered as the economy slows. Today, some of the strongest category players are struggling to post growth in the 3% range at their stores. However, most of this same-store growth has come from higher prices rather than traffic increases.
Take, for example, McDonald's Corp. The world's largest fast-feeder, which reported its third straight quarterly profit decline amid flat sales, is seeing traffic fall at its stores, analysts say.
Up the dining food chain, Darden Restaurants' signature chains posted weak same-restaurant sales in July. Darden's Red Lobster showed a gain of 1% to 2% over last July, driven by higher prices and promotions, but customer traffic fell 3%. At sibling Olive Garden, July sales were flat, with check averages and price increases up 1%, offsetting a 1% dip in customer counts.
That was a sharp contrast to last July, when Red Lobster saw a 4% to 5% boost in revenue at locations open at least a year, due to strong promotional sales. Last July, Olive Garden registered same-store sales increases at 8% to 9%, attributed to guest counts, prices and average check increases of 2% to 3% each.
Traffic, or lack of it, has been one of Advantica's Denny's most vexing challenges. First half sales at restaurants open at least a year grew just 2.1%, with franchised units growing at .4%, resulting in a net loss for the two quarters of $44.2 million.
The chain began fighting back with ads from WestWayne, Tampa, Fla., featuring the George and Louise Jefferson characters from the '70s TV show, "The Jeffersons" to tout its $2.99 Grand Slam breakfasts. In one spot, George explains to his wife how the special will cost them less than going to the grocery store. "This is reminding consumers in the marketplace the value that Denny's has," said Roy Getz, Denny's VP-marketing.
Some observers blame the market's indigestion on the swooning economy, curtailed travel and too many restaurants. Other researchers believe the decline signals the beginning of a sea change in eating patterns.
Mark D. Kalinowski, restaurant analyst with Salomon Smith Barney, blamed Outback Steakhouse's disappointing sales on diners' weak appetites for steak. "In times when consumers are holding onto their wallets a little more tightly, diners may be trading down from steak and into lower-priced entrees." He also suggested consumers could be trading down to more value-priced chains such as Chili's.
What this signals for marketers is a resurgence in communicating value. "That means [perceived] value or price becomes more important than it was before," said Neil Stern, partner of retail consultancy McMillan Doolittle. Allan Hickok, restaurant analyst with U.S. Bancorp Piper Jaffray, puts the restaurant slowdown into perspective.
"Sales have declined less than the sales compared to many categories in retail or other industries in general," he said. "I wouldn't want to be selling refrigerators, durable goods or computer chips. I'd rather be selling chicken breasts" in a restaurant.