Dining Out Falls Victim to Economy

Growth has slowed in last three months, a sign of jitters over economic uncertainties

By Julie Jargon



Restaurant visit growth has completely stalled in the last three months, signaling that consumers, jittery over economic uncertainties, are retrenching.

Visits to fast-food restaurants had been growing at a quarterly clip of 2% since September 2015, but haven't grown at all in March, April or May, according to as-yet-unpublished data from market research firm NPD Group Inc.

When fast-food growth comes to a halt, “that’s a red flag because it’s been an area of growth and it’s 80% of the industry,” NPD restaurant analyst Bonnie Riggs said.

Restaurants are among the first industries to benefit when consumers are feeling flush, but recent economic indicators may be giving people pause about dining out. Job growth slowed last month, and gas prices are starting to climb again.

Now, with the U.K. planning to exit the European Union, analysts say any related turbulence in U.S. financial markets could exacerbate the pullback.



Clifford Hudson, chief executive of burger chain Sonic Corp. , told investors last week that the consumer has become “more guarded” and is even more sensitive to prices than just a few months ago.

Visits to fast-casual restaurants, long the bright spot of the industry, declined last month for the first time since 2004, when NPD began tracking that segment. The historically booming sector declined 1% in May even with beleaguered burrito chain Chipotle Mexican Grill Inc. stripped out.

Diana Martin, a recently retired pharmaceutical sales executive in Marietta, Ga., said she used to dine out several times a week but in the past few months has cut back her restaurant visits to twice a month at most. Uncertainty around the next administration, she said, has caused her to pay closer attention to her spending.

“I retired early and I’m not getting Social Security yet, but I and a lot of people my age are afraid of benefits changing before we get there,” said Ms. Martin, 57 years old. “Right now I have short-term savings to get me by until I’m able to draw Social Security but I don’t feel confident in what I can count on.”

The bill at a fast-food chain she once frequented with her son used to amount to $12. During a visit two weeks ago she said she was floored when the same two meals came out to $16.

Meanwhile, the organic chicken at her local supermarket has been selling for around $6 per pound, down from $9 per pound, so she’s been stocking up.

Commodities inflation has eased, allowing grocers to pass along those savings to shoppers. May marked the fifth time in the past seven months that grocery prices declined. Many restaurant companies have said they’re raising menu prices to offset rising labor costs, including rising minimum wages in many cities.

As the gap between restaurant prices and grocery store prices continues to widen—it is the largest spread since the mid-1980s, excluding the latest recession—consumers may have even less incentive to eat out, experts say.

Moreover, consumers have an increasing number of places from which to buy food for at-home consumption, from prepared meals at the supermarket to meal-kit purveyors to convenience stores, where visits for prepared meals have grown by 2% in each of the past three months, Ms. Riggs from NPD said.

Tracy Schwartz, a 29-year-old part-time receptionist in Freehold, N.J., has been buying more prepared meals from supermarkets and clipping coupons since she got laid off from a full-time job five months ago. “I needed to figure out ways to save money,” she said.

Big burger chains have been trying to gain an edge by offering various deals such as a 4 for $4 meal at Wendy’s Co. and 2 for $5 deals at McDonald’s Corp. But offering discounts is a tricky way for restaurants to attract guests over the long term because consumers grow to expect them. In addition, the deals eventually eat into profit margins.

“The next few months are fraught with the potential for consumer distractions, from the political conventions in July to the Olympics in August to the presidential debates this fall,” William Blair analyst Sharon Zackfia said in a note to investors. “As a result, we would not be surprised to see restaurant trends remain somewhat volatile throughout the summer and potentially into the fall.”

There are indicators that suggest some consumers are feeling confident. Americans are taking on more credit-card debt and auto loans—behavior that typically signals people are less concerned about being frugal.

The mixed messages have left some CEOs scratching their heads.

Wendy’s Chief Executive Todd Penegor last month said that “the consumer does continue to be cautious” but added that “it has been hard to really pinpoint what’s driving that.” Earlier this month, Rodney McMullen, chief executive of Kroger Co. , the country’s largest traditional supermarket chain, told investors that the state of the consumer is “really hard to describe,” adding that sales of Kroger’s higher-end meats and cheeses are growing faster than less discretionary items.


—Eric Morath contributed to this article.

0 comentarios:

Publicar un comentario en la entrada