New York / NY. (ap) Americans are eating at restaurants with greater frequency and the industry is on the mend. Even so, restaurants face the dual headwinds of commodity-price inflation and a still-cautious, value-driven consumer. All of this is according to a new survey by AlixPartners LLP, the global business-advisory firm.
In some good news for the restaurant industry, according to the survey, 70 percent of Americans dined out at least once per week over the last year, compared to 49 percent in a similar survey from the first quarter of 2010. Dining trends improved across all segments, with the best growth on the high and low ends, with convenience stores and fine dining outpacing other segments.
«Our consumer survey showed that customers are dining out more, and we´re seeing that reflected in the industry financials», said Adam Werner, managing director at AlixPartners and head of the firm´s Restaurant + Foodservice Practice in North America. «We are seeing a lot of improvement in the restaurant industry and the overall outlook is positive».
Despite the overall positive outlook, restaurants can expect to face ongoing challenges. Diners remain budget-conscious and many are maintaining the conservative spending habits brought on by the recent recession. AlixPartners´ survey found that per-meal spending continues to trend downward, with consumers saying they expect to spend five percent less per meal at restaurants in the next twelve months – an average of 13,40 USD per meal versus 14,10 USD per meal over the previous twelve months.
In an ongoing challenge, many restaurants are also still learning to manage within the «new normal» of higher food prices. With the price for a basket of food staples now flirting with record highs, restaurant CEOs should be paying attention to their respective supply chains like never before, according to AlixPartners. From June 2009 to May 2011, the price of a basket of daily restaurant staples (including wheat, corn, beef, cheese and rice) increased 42 percent, according to the firm´s analysis.
«There is a definite lag effect for commodity price inflation», said Eric Dzwonczyk, director in the Restaurant + Foodservice Practice at AlixPartners. «The end of the first quarter marks the beginning of commodity-price resets for many restaurants. Even as they have increased top-line growth, the bill for commodity inflation has come due and many restaurants may be unprepared should inflationary headwinds remain strong».
The restaurant industry rebound is being led mostly by robust growth in the casual and convenience-store categories. Convenience-store dining frequencies grew 63 percent in the fourth quarter of 2010, while fast casual grew 25 percent in the same period.
Even with spending on the rise, diners are likely to remain cautious. A separate AlixPartners survey released in April found that 75 percent of Americans feel the same or worse about their personal economic situation as they did a year earlier. In this survey, when asked about their single-biggest concern regarding their economic situation over the next twelve months, 28 percent of consumers cited fuel costs, while 13 percent noted personal debt. When asked if gasoline prices continue to rise, 38 percent said they would cut back on the number of meals they eat outside the home.
Reflecting consumers´ recent frugality, when asked about online discount-aggregation services which provide things like «daily deals», there was a 13 percent jump in this survey versus the one in the fourth quarter of 2010 of those saying these inducements could influence their dining-out decisions. «Discounting is absolutely here to stay. Customers continue to look for a deal, and continue to expect to find coupons, even at fine-dining establishments», said Werner.
The survey also found that healthy-menu options remain important, with nearly 49 percent rating healthy menu options as «extremely» or «somewhat important» to their dining choices. However, when nutritional information was printed directly on the menu, only 40 percent of those surveyed said they ordered healthier options more frequently than they may have in the past.
Attempts to improve restaurants´ balance sheets and refinance debt have been mostly successful, according to the study. However, high levels of debt-to-equity remain, with debt ratios having doubled over the past five years.
Meanwhile, it says that merger and acquisition activity in the industry is likely to keep pace with 2010 in terms of the total number of deals, though the relative size of these deals is expected to decrease.
«M+A activity should be robust again this year», said Kurt Schnaubelt, director in the Restaurant + Foodservice Practice at AlixPartners. «In the current environment of cheap capital, deal activity is expected to pick up as many companies quietly look to put themselves for sale».
