Special Report: Consumer confidence

Diners remain cautious even as economic indicators trend up

When the Conference Board Consumer Confidence Index rose from 61.5 in January to 70.8 in February, the news spurred the Dow Jones Industrial Average to close above 13,000 for the first time in nearly four years.

Yet while that was a positive sign of an improving economy, economists were widely quoted saying they regarded the score of 70 as 20 points below the mark of a truly healthy economy in which Americans spend discretionary dollars on luxuries like restaurant meals. The last time the index was near 90 was December 2007.

That cautionary sentiment was reflected in the National Restaurant Association’s recently published 2012 forecast, which found the nation’s appetite for eating out relatively the same as in 2011. Despite the expectation of industrywide sales increasing in 2012 to a record high of $631.8 billion, about 3.5 percent higher than sales in 2011, the NRA pegged the nation’s somewhat glum mood to Americans’ doubt that the economy is yet set for a turnaround.

“The vast majority of U.S. consumers still have a bleak assessment of the nation’s economy,” the report said. “According to the association’s 2011 National Household Survey fielded in December 2011, more than nine out of 10 adults gave the national economy a rating of ‘poor,’ 65 percent, or ‘fair,’ 27 percent. Seven percent of adults described the economy as ‘good,’ while only 1 percent gave it an ‘excellent’ rating.”

But such findings don’t mean all hope is deferred, said Peter Francese, demographic trends analyst for the MetLife Mature Market Institute. Not only does he point to statistical evidence that the majority of restaurant customers are still eating out, he predicts certain segments will increase their restaurant visits in the near term. Operators who correctly anticipate such customers’ needs, he added, will find significant sales opportunities.

“There are two major demographic trends that will happen over the next three to five years,” Francese said. “One is baby boomers will continue to turn 65 at the rate of 3 to 4 million per year … and their dining-out habits will not diminish. … And two, Millennials (18- to 34-year-olds) will begin moving out of their parents’ homes and spending increased amounts on dining out. … These should be very encouraging trends for restaurant owners.”

Varied economic impact

In line with the NRA’s findings, Francese blames the recession’s lingering financial sting on many Americans’ wariness of poor job security and threats to their savings. Yet while about 10 percent of the nation remains unemployed, he pointed out that about 90 percent of the country is still working and carrying on with life pretty much as usual.

“It depends on who you talk to and where,” said Francese, acknowledging that the recession hit some pockets of the country harder than others. “I can take you to towns where the restaurants are doing well and business is not an issue. But I can also take you other places where it’s dead and people are struggling to put food on the table at home or make a mortgage payment. Eating out is the last thing they do.”

Francese also frowned on overly gloomy media reports about the economy, saying they rarely provide an accurate perspective on who’s suffering and to what degree.

“You would be astonished how much corporations pay me to tell them what is really happening as opposed to what the media is reporting,” he said. “You can walk out your door and interview 100 people on the street, and still be interviewing an infinitesimally small and unrepresentative part of the entire American population. … Anecdotes are not to be confused with data.”

Statistics compiled by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics show the vast majority of Americans have lived fairly normal lives amid the economic downturn, but that news coverage focused most on what’s happening at the margins of society, Francese said. 

“There’s no question that the data for college graduates is better than what you would see in blue-collar segments,” he said.

On the bright side, the unemployment rate — a figure the industry points to as intricately tied to its fortunes — is inching down. In January, businesses added 243,000 jobs, and the unemployment rate dipped to 8.3 percent, according to the Bureau of Labor Statistics. Still, 12.8 million people remained unemployed, the agency said. 

Meanwhile, total restaurant spending per person declined in recent years, but average visits have stayed about the same, Francese noted.

“The largest chunk of the population has worked right through this recession, never lost a job and continued to eat out at roughly the same rate as they had before,” he said.

Modified dining habits

Data from the NRA bears this out. In its research, the association labeled three unique consumer groups that, by and large, have maintained their dining habits, albeit with spending tweaks: Optimistic Consumers, or the 21 percent of adults who are confident about their financial situation and haven’t cut back on spending; Cautious Consumers, or the 42 percent of adults taking a wait-and-see approach to the economy while cutting back somewhat on spending; and Hunkered-Down Consumers, or the 37 percent of adults who have reduced spending significantly.

For example, the overall adult population reported a monthly average of 6.0 quick-service visits, 3.9 full-service visits and 3.4 off-premises visits in 2011. By comparison, Cautious Consumers averaged 7.8 quick-service visits, 5.0 full-service visits and 4.6 off-premises dinner visits each month. Even “Hunkered-Down Consumers haven’t completely dropped off the restaurant radar,” the NRA said in its forecast report, noting that such reluctant spenders averaged 4.3 quick-
service visits, 2.8 full-service visits and 2.8 off-premises visits in a typical month.

Not surprisingly, Optimistic Consumers are the most frequent restaurant visitors, averaging 7.9 quick-service visits, 6.2 full-service visits and 5.2 off-
premises dinner visits each month in 2011. Such people, Francese said, are typically white-collar college graduates in their peak earning years and well-to-do retirees spending money taking adult children and grandchildren to restaurants for family time.

“Grandparents are the ones with the discretionary money to spend on grandkids and adult children when they go out to eat,” Francese said.

This group particularly likes restaurant breakfasts, he added. 

“From 2005 to 2011, spending on restaurant breakfasts declined by 9 percent overall, but for people ages 65 to 74 years old, it actually increased by 4.7 percent. … So were I in the restaurant business, I’d be thinking about programs that favored senior citizens.”

But don’t forget the Millennials, a group even larger than baby boomers that Francese said spends 45 percent of their total food budget eating away from home.

“As this recession truly comes to an end, you’re going to see millions of these [people] leaving their parents’ homes, focusing on dating and marriage, and entering their prime child-rearing years,” Francese said. “They will increase their restaurant spending significantly over the next few years because they’re earning more and doing things like dating, which involves a lot of eating out. This group represents the second baby boom.”

Hard data aside, the NRA report found that the vast majority of consumers across all groups simply like dining out and want to do it more often. The report found that 97 percent of Optimistic Consumers, 93 percent of Cautious Consumers and 89 percent of Hunkered-Down Consumers enjoy eating meals away from home.

“Once the economic environment improves, individuals in these consumer groups will eagerly resume dining on premises, ordering in and taking out,” according to the NRA.