Outlook for full-service: Flat is the new up

The National Restaurant Association’s just-released 2013 Restaurant Industry Forecast has plenty of positive news for full-service restaurant operators—but only on a relative basis. Overall, it’s going to be a “been down so long it looks like up to me” kind of year, with tepid growth being welcome after the so-so numbers the restaurant industry has put up since the 2008-2009 recession.

The NRA forecasts that total industry sales will top $660 billion in 2013, an increase of 3.8 percent over 2012.  That’s a record, and NRA research senior v.p. Hudson Riehle rightly points out that restaurants are an “economic juggernaut” that rings up sales of $1.8 billion per day and accounts for four percent of the country’s gross domestic product.

However, on an inflation-adjusted basis, restaurant sales will rise just 0.8 percent, down slightly from the 1.3 percent real increase posted in 2012.

Why such measly growth? Blame it on the consumer. Riehle characterized overall consumer sentiment today as “bleak and fragile.”

No wonder. “Real median household income was $50,054 in 2011, down 8.1 percent from its recent high in 2007, and now sits at its lowest level since 1995,” the forecast notes. The number of households having incomes greater than $100,000 fell five percent between 2007 and 2011, as did the number of households having incomes between $75,000 and $99,999. These two income brackets account for 56 percent of total spending on food away from home, according to the Bureau of Labor Statistics. There were 2.1 million fewer households in them in 2011 than there were in 2007. Looked at this way, it’s no wonder restaurant sales have been flat.

Riehle paid special attention to the one economic statistic that means the most to restaurant operators: real personal disposable income. Historically, its growth correlates strongly with growth of restaurant usage. Right now that number is up 1.5 percent, which he characterized as a “muted growth rate.”

As a result, the NRA’s 2013 forecast calls for modest growth in the full-service segment. Full-service sales will total $208.1 billion in 2013, a 2.9 percent increase over 2012. After adjusting for inflation, the true growth rate will be a negligible 0.2 percent, a drop from 2012’s 0.4 percent real gain.

Actual sales may be flat, but what Riehle described as “pent-up demand” for full-service restaurant meals is on the rise. NRA research shows that 40 percent of adults are not eating on-premise meals at restaurants as often as they would like to. That’s true even for those who reside at the higher end of the economic scale.

Thus the key for full-service operators in 2013 lies in figuring out how to unlock their share of this pent-up demand. When planning your strategy, keep in mind the forecast sees consumers “managing their check” so they can eat in full-service restaurants more frequently this year.

“The fact that the restaurant industry will continue to grow in an operating environment that presents substantial challenges is a testament to the essential role that restaurants play in our daily lives,” says Riehle. “Restaurants are offering products and services that consumers actively seek out and enjoy; an activity in which consumers are selecting to engage despite cash-on-hand restraints because it is an important component of their lifestyle.”

Two key areas of critical importance to full-service operators, food and labor costs, were also addressed in the NRA’s forecast.

Food costs at wholesale rose 4.9 percent in 2010, 8.1 percent in 2011 and 2.2 percent in 2012. The outlook for 2012: a rise of 4.2 percent.

On the labor front, “preparing for the implementation of health care reform will put additional cost pressure on some restaurant operators in the near future,” the forecast notes. Also, the NRA cautions that “recruitment and retention, which was a top challenge pre-recession, will make its way back onto restaurant operators’ radar as the U.S. labor pool is starting to become shallower; restaurant operators in all segments expect recruitment and retention to be more challenging in 2013 than in 2012.”

There is wealth of detail about all facets of the restaurant industry in the full version of the NRA 2013 Restaurant Industry Forecast. Copies are free to NRA members; others pay $199.95. If you own a restaurant, this information-packed document could well be worth its price. Find it at www.restaurant.org.