Coming on the heels of weaker-than-expected national jobs data earlier this month and in the midst of a heated debate in Washington about raising the minimum wage, restaurant chains may have even more to worry about as a new consumer survey by AlixPartners, the global business-advisory firm, finds that 29% of Americans say they intend to spend less on dining-out in the year ahead. That’s the highest percentage among 14 diverse categories asked about in the study, including spending on entertainment, leisure activities, sports equipment, travel, clothing and home furnishings. In addition, the study finds diners expecting to spend 9.1% less per restaurant meal in the year ahead (vs. what they say they spent per meal in the past year, to $13.55 from $14.91), a dramatic slide backward in expectations from a similar AlixPartners survey a year ago when diners then said they expected to spend 5% less in the year ahead.
Meanwhile, the percentage of Americans in the survey dining out at least weekly over the last 12 months dropped to 57%, from 60% in the survey of a year ago, and the top reason given for cutting back on visits was – for the second year in a row –the desire to “eat healthier,” topping even “current finances.” In a similar vein, 84% in this recent survey said that “healthy menu options” are at least somewhat important to them in choosing where to dine out, virtually even with survey results from a year ago (86%). However, only 20% said such options were “very” or “extremely” important, down from 29% in the survey of a year ago, and a whopping 52% said that nutritional information provided on menus has no impact on their ordering decisions, up from 45% in the survey a year ago – while only 16% said they’d be willing to pay a premium for certified organic food at restaurants, all pointing to a possible disconnect today between what consumers say they want and what they’re actually willing to order and to pay for.
“Diners, like most American consumers today, remain stuck in the limbo of today’s seemingly one-step-forward, one-step-back economy,” said Eric Dzwonczyk, managing director at AlixPartners and co-lead of the firm’s Restaurant & Foodservice Practice. “In fact, our survey suggests that restaurants may be suffering disproportionately from that phenomenon vs. other types of businesses. Also, it is somewhat paradoxical that operators are focused on rolling out healthful offerings that consumers say they want but in many cases don’t seem willing to order or pay a premium price for.”
The study also found that promotions may be losing their effectiveness among consumers and that a market-share war is brewing among restaurants, especially in the lunch day-part. Among consumers who said they plan to spend less on dining-out in the year ahead, “utilizing coupons, promotions and discounts” led the way, as they did in the survey of a year ago (as well as in an AlixPartners survey at the beginning of 2012), among the preferred tactics for spending less, ahead of such options as eating at less-expensive restaurants, ordering fewer side dishes or ordering cheaper dishes. However, the percentage of consumers citing coupons, promotions and discounts in this year’s survey dropped to 49%, from 56% in the survey of a year ago (and 60% in the 2012 survey).
“There may well be promotion fatigue out there among consumers,” said Adam Werner, managing director at AlixPartners and co-lead of the firm’s Restaurant and Foodservice Practice. “In recent years, consumers have been hit with just about every kind of ‘meal deal,’ ‘two-for-one deal,’ ‘limited-time-only deal,’ ‘not-really-a-holiday holiday deal’ etc. imaginable, and while many such promotions have been quite effective, they may well be less effective going forward. Instead, our survey and in-field experience suggests that consumers today are showing a preference for everyday low pricing and consistent value.”
Meanwhile, according to the survey, while dinner and lunch remain the most popular day-parts for dining out, the competition for the lunch patron in particular is keener than ever and could well rise to the boiling point this year. The survey finds that while casual-dining restaurants dominate dinner, with 59% of consumers reporting that restaurant-type to be their preferred location for dinner, and fast-food restaurants dominate breakfast, lunch is perhaps the biggest slug-fest of all. According to the survey, fast-casual (with 35% of diners picking that as their favorite option), fast-food (31%) and casual (27%) are virtually neck-and-neck when it comes to consumers’ preference for lunch.
“This could well be the year that the market-share battles, in lunch but also elsewhere, really get ugly,” said Molly Harnishfeger, a director in AlixPartners Restaurant & Foodservice Practice. “And the competition won’t be coming just from other restaurants but from convenience and grocery stores as well.”
According to the AlixPartners survey, 13% of the time consumers now prefer getting their out-of-the-home breakfasts at convenience and grocery stores, their lunches there 6% of the time, their dinners 4% of the time, their late-night food 24% of the time and their snacks a whopping 49% of the time.
The AlixPartners study also showed that, despite uncertain demand, advertising spending by restaurant chains has been increasing. In a bid to capture fatter slices of what consumer spending there is, restaurants increased ad spending by 6% in 2013, finds the study, targeted mostly on new menu options and limited-time offerings (LTOs). The study also finds that operators are leveraging technology in new ways to gain market share. Specific examples noted in the study include online ordering, smartphone loyalty programs, apps that communicate such things as daily deals, enhanced ordering capabilities from automobiles and game consoles, and expanded roll-out of table-top technologies inside the restaurant.
The study also predicts that the increased level of shareholder activism in the industry of late is a trend that is almost certain to continue in 2014. The study suggests that investors, including private equity, see restaurants as a potential area of opportunity given recurring cash flow, real-estate portfolios, inflated cost structures and underperforming brands in the industry. The study also suggests that management teams in the industry get out in front of many of the trends outlined in the study by focusing on four core areas: establishing and maintaining a culture of “lean operations,” evaluating the overall capital structure, considering divestiture of non-core brands or ancillary operations and reviewing investor-relations strategies and corporate governance.
About the Study
The AlixPartners North America Restaurant and Foodservice Review was conducted in January 2014 and comprised a survey of 1,046 adults in the United States, age 18 or over. The survey focused on consumers’ current and planned frequency of dining occasions across the restaurant, convenience-store and ready-to-eat categories; expected spending on meals outside the home; preferred types of restaurants; and key criteria for restaurant selection. It also asked participants for their opinions on selective topics including health and wellness, marketing tactics, and innovation in restaurant and foodservice offerings.