Recovery in 2010? Maybe not

LOS ANGELES While research shows that consumers are tired of not being able to dine out as much as they’d like, rising gas prices and lingering under employment will likely prevent any increase on restaurant spending in the near future, according to two industry observers at last week’s UCLA Extension Restaurant Industry Conference.

 

At the one-day event at the Sheraton Gateway Hotel in Los Angeles, and UCLA’s 14th annual conference, a comprehensive picture of both the economy’s mixed signals and the mood of consumers and restaurant operators was presented by Ron Paul, president of industry research firm Technomic Inc., and Paul Westra, a managing director of investment management firm Cowen & Co.

 

 

The restaurant industry has historically been a “first-in, first-out” indicator of economic trends, said Paul, but this recession is different.

 

 

“We haven’t experienced a period like this when consumer confidence is this low,” he said.

 

 

Even though there has been a modest return of retail spending, Paul said, consumers are still spending less in restaurants — a problem that will likely continue as unemployment rates are expected to hover around 10 percent through the rest of the year.

 

 

Even more of a potentially lasting threat is the nation’s “under employment” levels, which includes the number of Americans now working part time versus full time or who are paid less than they were pre-recession, said Paul.

 

 

In addition, Westra noted that rising gas prices — which are expected to climb above $3 per gallon this spring — are likely to add about $75 per month to an average household budget. That pressure will negatively impact restaurant traffic numbers between 1 point and 2 points, he estimates.

 

 

Still, there is pent up demand for restaurant visits.

 

 

Earlier this year, consumers surveyed by Technomic said they were dining out less often, ordering less take out and preparing more meals at home. In January, consumers in focus groups said they were “tired of not being able to go out; they’re tired of trading down or of not ordering dessert,” said Paul.

 

 

In addition, Westra noted, savings rates peaked in February and have started dropping slightly, indicating that consumers are spending again.

 

 

Consumers who are spending continue to hunt for deals and are more concerned about “hidden costs,” such as parking, valet fees, babysitting and gratuities, said Paul.

 

 

Until there is an uptick in spending at restaurants, some are unconvinced about a turnaround. Westra noted that a same-store sales rebound from negative trends isn’t expected until the third quarter.

 

 

Wall Street investors are in “no man’s land,” he said, as they wait for consumers to begin spending more in restaurants again. “The market is baking in a recovery that we haven’t seen yet,” he said.

 

 

Looking ahead, Westra predicted that limited-service restaurants on average will see flat same-store sales this year, which in real terms will reflect a decline of 1.5 percent. Full-service restaurants will be down by 4 percent, or down 5.4 percent in real terms.

 

 

One silver lining would be a possible return of business-related dining, which Westra predicted will increase this year.

 

 

“If we get business travel going again, it would have a tremendous impact on the industry,” he said.

 

 

Contact Lisa Jennings at [email protected] [3].