The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) reported that consumer spending on food in the fourth quarter of 2008 fell 3.7 percent from the third quarter, after adjustments for inflation. BEA figures specific limited-service meals show a decline of a little more than 2 percent from 2007 to 2008, and Technomic’s research confirms that category sales during that period were flat at best or had slightly decreased after inflation adjustments.
Unfortunately the trend is likely to continue, according to a national survey of U.S. company employees conducted by ComPsych Corp., a provider of employee-assistance programs. In the survey, released in February, 90 percent of the respondents said they planned to cut back on their spending this year. Nearly half specified they would be cutting back on food and dining expenditures.
But even now, a great majority of consumers don’t want to—or don’t have time to—cook. So with financial belts taken in a notch, many have turned to quick-service when dining out.
Quick-Serve vs. The Others
In the National Restaurant Association’s industry-tracking survey comparing same-store sales from February 2009 to 2008, almost half of quick-service operators reported increases.
During the same period, fine dining felt the pinch more than any other category, with a whopping 62 percent of operators experiencing plummeting sales. Quick-casual, casual and family-dining categories have not fared much better. Sales decreased for 59 percent of quick-casual restaurants, 58 percent of casual establishments, and 57 percent of family-dining operations.
"Much of the quick-service growth can be attributed to trickle-down dining. Consumers who can no long afford to eat at full-service restaurants are now going to fast-casual operations,” says Technomic Executive Vice President Darren Tristano. “Instead of Chili’s, they might choose Chipotle,” he says. Taking the situation one step further, consumers who cannot afford to eat at fast-casual places are turning to quick-service.
Traditionally, value has been defined as offering a quality product at a reasonable price, says Tom Forte, restaurant analyst for Telsey Advisory Group. But for a growing number of consumers trying to weather the recession, value means low price point. “They’re looking for the best product they can get for $1,” Forte says. He cites Sonic, which boosted its business with last December’s debut of $1 deals to rival its bigger burger brethren, as an example.
As other operators realize getting business to go up requires bringing prices down, many are turning to deals such as discounting and coupons to drive consumer visits, says Bonnie Riggs, restaurant industry analyst for NPD Group. As of February, she noted, “deal” traffic was up 8 percent over last year and accounted for 24 percent of total quick-service restaurant traffic. On the other hand, “non-deal” traffic decreased 2 percent.
Surprisingly, some savvy quick-service operators are gaining even more ground by introducing attractive items at the premium end of their menus to attract consumers who are finding casual candidates such as Applebee’s, Ruby Tuesday, and Chili’s beyond their budgets.
Among the most successful innovators in this area are burger-centric McDonald’s (the Angus Burger) and Burger King (the Steakhouse Burger). Both also offer high-end chicken sandwiches. Burger King is also planning to roll out its batch broiler technology by the beginning of 2010 to allow the chain to deliver casual dining–like items such as kabobs and on-the-bone ribs at quick-service speed and price points.