Once upon a time, offering a good product at a fair price was a sound strategy for a restaurant. But, for the many restaurants that rely heavily on the middle class, that proposition is no longer good enough, say officials at market research firm The NPD Group.
New data from Pew Research and Port Washington, N.Y.-based NPD reveal that America’s middle class continues to shrink — and it’s having a notable impact on restaurant visits.
According to a January 2014 Pew Research survey, the share of Americans who identify as middle class is at its lowest ever, dropping to 44 percent, from 53 percent in 2008. Simultaneously, the portion of survey respondents who consider themselves a part of the lower or lower-middle classes jumped to 40 percent, from 25 percent in 2008.
The result is that a large segment of the population, especially those in low- and middle-income households, have been watching their discretionary spending more closely and visiting restaurants less, NPD found.
“The shrinking middle class is not going out as much because they can’t afford it,” said NPD analyst Bonnie Riggs. “[Operators] have to address this group that is shrinking and making fewer visits.”
In the year ended June 2014, consumers in the upper-low income group, or those with income between $25,000 and $44,999, accounted for 18 percent of visits to restaurants, falling from 20 percent in 2008. Those in the lower-middle group, who earn between $45,000 and $74,999, accounted for 24 percent of visits, decreasing from 25 percent in 2008. Those consumers in the low (under $25,000) and upper middle ($75,000 to $99,999) groups maintained their share of visits, at 16 and 14 percent, respectively. The only group to increase their share of visits was the high-income group. Consumers with income of $100,000 or greater accounted for 28 percent of restaurants visits, rising from 25 percent.
While consumer cutbacks are impacting restaurants at nearly all price points, those at the lower end are being hit hardest, NPD found. Based on a compound annual growth rate over a three-year period ending in June 2014, total restaurant traffic declined 1 percent in the $0 to $10 check range, which accounts for 80 percent of industry traffic.
Additionally, nearly 90 percent of those lower checks are from visits to quick-service outlets, the segment consumers who fall into lower- and middle-income groups patronize most. While other check ranges all showed modest growth, it was not enough to offset the declines at the lower check range.
“[Consumers] are spending less for sure,” said Riggs. “They can not afford to go out to restaurants, even at the lower end.”
Minding the middle
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For some time now, restaurants that depend on the middle class have been implementing solutions to retain these customers, with varying degrees of success. Beef ‘O’Brady’s and Culver’s share strategies they’ve used to remain relevant to the middle.
Beef ‘O’Brady’s
The 209-unit Tampa, Fla.-based chain of family sports pubs has always focused on serving families with children, primarily in the middle class. With incomes flat and consumers cutting back, Beef ‘O’ Brady’s has been working to ensure that eating out remains affordable for its largely middle-class customer base.
“We operate in a niche that is very price concerned,” said Beef ‘O’ Brady’s CEO Chris Elliott. “We needed to focus on value, things that would give our guests reasons to come back more often without impacting franchisee margins.”
Beef ‘O’ Brady’s recently launched a number of new value-centric promotions designed to address the issue, all of which have been growing sales and traffic. Among the most successful efforts are the chain’s new Early Week Specials, regular items offered at a discount on selected days, and the revamped lunch menu, featuring smaller portions and downsized prices. For example, Burger Mondays, when burgers are priced at $4.99 instead of $7.99, has increased Monday sales by 15 percent. And the new lunchtime offerings, such as Value Combos, Pick 2, and Bowls and Salads, have led to a 25-percent increase in sales at that daypart.
“[Customers] get really good deals and complete meals for a good price,” said Elliott. “[And the] traffic way offsets the discounting.”
Culver’s
For Prairie du Sac, Wis.-based Culver’s, remaining relevant to middle-class customers is, in large part, about being consistently there for them.
“Our approach has been … we have to make sure we execute at our restaurants,” said Culver’s president Phil Keiser. “The one thing they want to know is they can count on you. They can’t [afford to] take a chance.”
Key to that approach is the chain’s owner/operator model.
“Our franchises are a collection of mom-and-pop operators,” Keiser said. “That helps create a culture in our restaurants … neighbors taking care of neighbors.”
Keiser also credits the chain’s unique field team structure for maintaining consistent quality. While many chains outsource restaurant evaluations and cleanliness inspections, Culver’s field team is a small group each charged with supporting only a few units units on every aspect of operations. Keiser says the small number of units each support person is responsible for enables them to visit each location a little more frequently, spend more time during each visit and talk more in-depth about the details.
But that doesn’t mean that Culver’s overlooks middle class consumers’ need for price value. For the last two years, the chain’s “Welcome to Delicious” campaign has sent customers the message of its “affordable quality.”