April, 2012

Research Perspective and Comments & Analysis

Restaurant Industry Growth Is Good News For Produce Industry

By Hudson Riehle, Senior Vice President, Research & Knowledge Group, National Restaurant Association

The restaurant industry is projected to expand in 2012, according to the National Restaurant Association’s 2012 Restaurant Industry Forecast. Total restaurant industry sales are expected to reach a record high of $632 billion in 2012, a 3.5 percent increase over 2011.

The quickservice segment is again set to grow at a slightly higher rate than the tableservice segment, at 3.1 percent, or $174 billion, compared with 2.9 percent ($201 billion).

Segments expected to post sales growth at a higher rate than the overall industry include military foodservice, retail-host restaurants, social caterers, transportation, employee foodservice and healthcare. 

In addition, the restaurant industry will continue to fuel U.S. employment in the year ahead as the nation’s second largest private sector employer. Overall, restaurant industry employment will reach 12.9 million in 2012, representing 10 percent of the total U.S. workforce. And, this marks the 13th consecutive year that restaurant industry job growth will outpace the national job growth.

Looking ahead, the Association expects a jump in restaurant employment to 14.3 million individuals in the next decade — an increase of 1.4 million jobs, with first-line supervisors, combined food-preparation and serving workers, and counter attendants being the fastest growing positions.

While the industry is expected to grow in 2012, the top challenges cited by restaurateurs are food costs, building and maintaining sales volume, and the economy.

Because about one-third of sales in a restaurant goes to food and beverage purchases, food prices are a crucial component for operators. Last year, we saw wholesale food prices post their strongest annual increase in more than three decades. In 2012, we will see continued increases in the cost of some commodities, while price pressures will ease for others. Restaurants are expected to spend a collective $225 billion on food-and-drink purchases this year.

However, opportunities are also present for operators to be successful by understanding and leveraging consumer trends to attract new guests and make current ones come back. The good news is that there is substantial pent-up demand for restaurant services, with 2 out of 5 consumers saying they are not frequenting restaurants as often as they would like. With the right incentives, that demand can translate into sales.

Giving consumers what they want will be crucial for restaurant operators in 2012. As the recession has caused 8 out of 10 consumers to cut back on spending to some degree, it is more important than ever for operators to nudge those guests into patronizing their restaurants.

Food quality, customer service quality and value are the top attributes consumers look for when choosing a tableservice restaurant. For quickservice restaurants, customers are looking for food quality, value and speed of service when picking where to dine.

When it comes to food, the top menu trends are all about local sourcing and nutrition, especially kids’ nutrition. Nearly three-quarters of consumers say they are more likely to visit a restaurant that offers locally produced food items, and more than half of all restaurants currently offer locally sourced produce. In addition, 6 in 10 restaurant operators say they’ve noticed increased interest in locally sourced items among their guests. This interest is most noticeable among fine dining and casual dining operators (see chart below left).

Similarly, nearly three-quarters of consumers say they are trying to eat healthier now at restaurants than they did two years ago, and a majority of restaurants agree that customers are ordering more such items (see chart below).

Another continuing menu trend is a focus on environmental sustainability as a culinary theme. Fifty-five percent of consumers say they’re more likely to visit a restaurant that offers food that was grown or raised in an environmentally friendly way. Among operators, 6 out of 10 operators agree that their guests are more interested in environmentally sustainable menu items now than two years ago. Among industry segments, this sentiment is higher in the fine dining, casual dining and fast casual operator categories.

 

Does Sentiment For ‘Local’ Translate Into Sales?

It is, of course, inspiring to hear that consumers claim they are seeking locally grown foods, better nutrition for their children and foods produced in an environmentally friendly way. It is, however, always a quandary to know precisely what consumers are trying to tell us when they answer surveys in this way. Such data must be assessed in the context of other data points. For example, McDonald’s recently announced that in February 2012, its U.S. same-restaurant sales for units open more than 13 months are up 11.1%. The big drivers: Chicken McBites, the new coffee program and other beverages, breakfast and the Filet-O-Fish sandwich.

Though there is, of course, a rarified Farm-To-Table restaurant segment, it can’t possibly account for even 1% of foodservice sales. It is also rife with fraud. Time after time, a quick overview of Farm-to-Table menus indicates local sources being claimed for product that is highly unlikely. One recent visit to a Florida restaurant that claimed to be serving Florida broccoli, which does exist but is unlikely to be in this restaurant’s supply chain, bore this out when the restaurant gave the name of a local farm that supposedly was growing Florida broccoli.

Knowing this operation, we thought this unlikely and were going to check it out. The point was moot, though, as what the restaurant actually served was Mann Packing’s Broccolini – not broccoli, local or otherwise.

Without any kind of third-party certifications and no standard definitions, one hesitates to attribute too much to consumer statements in this area. Add in the propensity for survey subjects to say the “politically correct” thing, and one wonders precisely how this actually plays out in sales.

The data regarding restaurants that sell locally grown produce is also somewhat meaningless. Some might call it the Wal-Mart problem: Wal-Mart defines locally grown as grown in the state of the store it is being sold in.

This is a political definition and actually accords with a lot of consumer sentiment that revolves around consumers supporting their own “tribe,” but many , for example, environmentalists, would find fault with such a definition as it encourages purchasing across the broad reach of, say, Texas, rather than just across the state border in Oklahoma.

In the end, the Wal-Mart definition — because it includes both products always sold locally, say California citrus in California, and any special local buy efforts — creates a kind of absurdity. In the case of Wal-Mart, it means that in light of heavy produce procurement in California, if Wal-Mart wants to announce an increase in the sale of local produce, the most effective technique involves no change in merchandising or procurement; it just involves opening more stores in California.

Equally one wonders what the restaurants that sell “local” actually sell. A few – mostly white table cloth types – do direct procurement from small scale, bio-diverse farms. They might also adjust menus to take advantage of local items. Some college foodservice programs also reach out in this manner. Certainly there is more consciousness on these issues so that distributors are more likely to offer more local options and restaurants to order them.

Still and all, for the vast mass of foodservice outlets one suspects that their trumpeting of local is more marketing than substantive change. This is not surprising. Even at retail, marketing of locally grown options has increased far faster than any local sales.

Another issue related to consumer surveys is that consumers may assume that all other things are ceteris paribus – or all other things are equal – but that is not necessarily so.

It is interesting that when one looks at a concept such as Darden’s Seasons 52 – a concept one would think would fit right in with the local phenomenon – one sees very little reference to local. One suspects this has more than a little to do with Darden’s rigorous food safety program, which would make buying from random, local, small scale, bio-diverse farmers – or from local farmer’s markets — almost impossible.

Surely incorporated into consumer perceptions of food quality, value and the idea of eating healthier is the idea that the food will be safe. Yet consumers really don’t have the ability to evaluate whether a local vendor is able to execute to the food safety standards of a national shipper. Most chefs who make a big deal of going to the local farmer’s market to buy ingredients haven’t the foggiest idea of the sophistication or integrity of the food safety practices of the producers of the food they are buying.

This leads to the obvious question, what are the assumptions behind consumer expressions of preference for particular types of food? Does the rise of the Filet-O-Fish express dissatisfaction with rising beef prices, or do people believe that the deep fried patty is nutritious or healthy?

Do consumers prefer local per se, or in that expression, are consumers expressing beliefs that local is less expensive, fresher, better for the environment, etc.? And if these things are not the case, perhaps consumer interest won’t translate to purchase activity.

Clearly, the research on these topics is just beginning.