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State of the Restaurant Economy
• Will it ever be the same?
Thursday,
July 2, 2009
The restaurant business is changing fast, say marketing analysts. Customer demographics are shifting, and operators looking at long term success need to read the writing on the wall ASAP.
Research indicates that “Generation Next”, the coveted 18-24 year old age bracket and the heaviest users of restaurants, is not only dwindling, but is pickier and more frugal than the generation before.
A recent study published by NPD Group (New York-based consultancy firm) finds the age group shying away from high calorie foods and gravitating more toward healthful and nutritious menu options.
In addition, the demographic is big on fresh ingredients and is less likely to visit a restaurant a second time if food quality is poor.
Restaurant foot traffic by 18-24 year olds dropped nine percent last year in both the quick service (fast food) and full-service segments, according to Nation’s Restaurant News.
Casual dining chains (including fast-casual), such as Applebee’s, Olive Garden, Subway, Chipotle Mexican Grill and the like, have taken the lead in targeting the age group with perceived value and an emphasis on quality ingredients and freshness.
What about baby boomers?
Customer counts for Baby Boomers are up over last year, report NPD statistics, but the demographic is more demanding and less forgiving than ever.
Important for restaurant operators to understand, say analysts, is that unlike their parents, Baby Boomers today have “seen it all” in terms of the best and worst in restaurant etiquette. As such, they have little-to-no tolerance for lousy food and bad service.
The ‘three strikes rule’ no longer applies to dining, say critics.
Damage done by the dollar menu
It’s tough to compete against a dollar menu. And without an immense amount of buying power most restaurants can’t. A whole generation of kids will be raised on the dollar menu, which may act as their benchmark for measuring restaurant value in coming years. This isn’t to say that when these kids reach adulthood they won’t pay more than a dollar for a meal, but it’ll be rare for this group to spend more than $10, say economists. This creates a challenge for forward-looking operators with tight margins, limited buying power and high operating costs.
As cost inputs rise, intense competition from chain and franchise establishments push consumer prices down – a veritable nightmare for independents.
Discounts are forever part of the restaurant culture
Offers, discounts, deals, coupons, half-off gift certificates; they’re here to stay, say marketing analysts. Without 'em, a restaurant’s chance of survival is slim to none in today’s highly competitive marketplace. Forward looking, coupons are more than a trend, they're how restaurants will continue to build value into their menus and compete head to head for market share.
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Survey Says:The majority of locals surveyed by MargateNews.net say they rarely pay more than $8 dollars for lunch at a full-service restaurant and consider $10 – including tax and tip – to be the absolute maximum.
Respondents to our survey liked the concept of a $5 menu. These people say they are more inclined to frequent supermarket delis for prepared foods, where prices range from $4 to $8. In addition, sharing ‘takeout’ is commonplace among office staff, say respondents.
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Dining Deals
Devastating to a restaurant’s bottom line are promotions similar to Sun-sentinel Dining Deals, Pauly’s Picks and others that match your restaurant purchase ‘dollar for dollar’ – a $50 Gift Certificate cost you $25. Although great for consumers, restaurants lose money on these 'deals' even while gaining market share. Hence, the long-term impact of these promotions is potentially crippling to independent operators looking to build business based on great food and great service.
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Survey Says: The majority of ‘Dining Deal’ participants surveyed by MargateNews.net said, that although ‘Dining Deals’ introduced them to a new dining experience, it was unlikely that they would return to that same restaurant without a dining deal - even if the food and service were exceptional.
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“All You Can Eat”
Americans love buffets. Good news for full-service establishments is that buffets may be on the way out. Episodes of food-borne illness run rampant among these operations (as indicated in countless health department complaints) and the heightened awareness of obesity among Americans has toned buffet crowds down a bit. These factors, along with costly food waste, high operating costs and a saturated market, have resulted in rapid ownership turnover and store closings. And yes, despite their all you can eat pizza value, crowds at CiCis have tapered off too.
Who's closing their doors and who isn’t?
Roughly 4 percent of high-volume ($1 million a year or more in revenue) restaurants closed last year nationwide as result of reduced corporate spending, high rents, poor consumer confidence and the credit crunch – people love to dine on credit!
Brinker International closed 18 Macaroni Grills, Roadhouse Grill closed all 21 of their units, Shell’s Seafood closed all 22 units and Starbucks shuttered more than 300 stores nationwide. In addition, Bennigan’s and Steak and Ale are gone for good.
In Margate, ethnic eateries are popping up everywhere, despite the poor economy. But none seem to be busy day or night with the exception of La Granja on Atlantic and a few select Roti shops scattered about the city.
Meanwhile, Manny at Main Street Diner closed his doors for the second time this year and Island Jacks, well-known for crummy food and lousy service, is finally out of business (Remember Shoneys?) Then there’s the Clock Restaurant, closed after decades of serving Margate.
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Margate can expect to shed more restaurants before the economy turns around. Those remaining will have solid marketing campaigns, value in their menus, great service, fresh ingredients and a distinct ability to differentiate from the competition. If the economy doesn’t improve by 2010, add ‘access to capital’ to that list.
More restaurants are competing for fewer customer visits this year and consumers are dining out about half as much as they did last year, according to National Restaurant Association statistics.
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Copyright Cassius Group 2009
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