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Increased visits, spending hint at brighter horizon ahead for industry

Like a voyager lost at sea amid a tempest, the foodservice industry has been struggling for the last two years to navigate its way through uncharted waters churned up by the Great Recession. 

In 2010, however, it appears that the industry began to get its bearings and may now be sailing, although uneasily, along the path to recovery. 

Perhaps the best indicators that the industry has made the appropriate course-corrections can be found in consumers’ increased visits to — and spending at — restaurants beginning in the third quarter of 2010. According to new data from market research firm The NPD Group, customer traffic during the quarter for commercial foodservice matched the year-ago level, now about 4 percent below the third quarter of 2008. In addition, spending at commercial foodservice nearly recovered from losses a year ago, growing 2 percent on top of a 2-percent decline, registering about the same volume level as the third quarter of 2008. 

Further indications include an edging back up of some of the areas most impacted by the recession, most notably, parties with kids and the fine-dining business. In addition, the NPD data reveal that the morning meal, the daypart least affected by the recession, remained resilient. 

“While the Great Recession may be over from the government’s point of view, we are shy of recovery in U.S. foodservice,” said NPD analyst Bonnie Riggs. “On the bright side, we are moving in the right direction.”

While the industry performed better overall, major chains fared the best in 2010. They captured a 60-percent share of industry traffic, up from just 51 percent in 2002. 

“It’s not unusual to see chains faring better in tough times,” Riggs said. “Indies get hit harder because they don’t have the marketing clout.”

Although the quick-service segment experienced modest traffic gains, they were offset by the continued weakness in the full-service segment, NPD found. Accounting for nearly a three-quarters share of industry traffic, quick-service operators saw traffic increase 1 percent in the most recent quarter. Coming off double-digit declines a year ago, the fine-dining segment — which accounts for less than a 1-percent share of industry traffic, managed to increase traffic 3 percent. 

Meanwhile, midscale and casual dining, which account for a combined 20-percent share of industry traffic, were down 3 percent and 2 percent, respectively.

The fast-casual segment, which NPD tracks as part of quick-service, performed extremely well in 2010, NPD found. 

“Fast-casual was a real driver,” Riggs said. “It’s not just about price. They were able to meet consumer value expectations.”

Value continued to be a draw for all segments, but contrary to popular perception, consumers don’t just link value to low price, NPD discovered. For example, consumers surveyed by NPD described value in numerous ways, including food quality, food offerings, price, convenience, portions, service, preparation, presentation, atmosphere and expectations. 

Arguably, some of the biggest consumer dining news of 2010 was the return of diners with children to restaurants, primarily at fast-food and midscale outlets. In spring, the 3-year decline in visits by parties with kids came to a halt, and then turned positive in the summer quarter. In the quarter ended August 2010, traffic for parties with kids increased 1 percent, up from a 6-percent decline during the same period a year earlier. 

“Families with kids have grown recession-weary. They want to get out of the house,” Riggs said. “It’s now a treat. It costs a lot less to take [the family] to a restaurant than it does to do a movie or a sporting event.”

Another factor that may have motivated diners to eat out more frequently this year was improved restaurant service, NPD found. Compared with several years ago, 2010 saw consumers’ “excellent” ratings increase for service attributes like speed of delivery, pleasant/friendly service, fast/efficient service, cleanliness of restaurant, treated as a valued customer, kid-friendly and atmosphere.

“Service is going to be key in driving traffic. Consumers are in the driver’s seat and are not going to settle for mediocrity,” Riggs said. “The more you pay, the expectations are higher. But even in fast food, operators are going to have to step it up.”

However, consumers still were uneasy with regard to restaurant affordability. NPD found that satisfaction slipped when consumers were asked to rate restaurants as “affordable to eat there often.” 

Tough times drove consumers to order familiar, feel-good foods at restaurants, NPD said. According to the data, while all main food-and-beverage categories declined in 2010, hamburger and breakfast grew. 

“That’s what [consumers] were looking for this year,” Riggs said. “Things that were familiar, comfortable.”

Although most categories declined, many food items are growing in popularity. The top-growing foods at restaurants are burgers, chicken wings, bacon, doughnuts, brownies, barbecue sandwiches/ribs, onion rings/flowers, eggs and breakfast wraps. Top-growing beverages include iced tea, specialty coffee and bottled water.

While last year the majority of restaurants struggled to simply maintain traffic and sales, this year many concepts managed to show growth, especially fast-casual and even some midscale concepts.

Following a disappointing 2009, fast-casual sandwich chain Capriotti’s saw sales turn positive in 2010. As of October, the sandwich chain experienced systemwide same-store sales growth of nearly 6 percent, up from negative 1 percent in 2009. In Las Vegas, where Capriotti’s is headquartered, same-store sales rose nearly 13 percent. 

“We attribute these increases to improved operations, an integrated TV and social-media campaign called VoCAPulary and numerous remodels, which give our restaurants a more inviting atmosphere,” said Jason Smylie, Capriotti’s executive vice president and chief marketing officer. 

Some chains made all manner of changes to generate sales increases, but it was what an official at Denver-based Qdoba said the chain didn’t do in 2010 that triggered a positive return. The fast-casual Mexican chain reported comp sales increases of nearly 3 percent in fiscal 2010 and nearly 6 percent for the most recent quarter.

“There’s no great magic ... [it’s about] not cannibalizing our marketing budget, not cutting labor at restaurants, not lowering specs or food quality,” said Todd Owen, Qdoba vice president of franchise development. “We know Qdoba’s well over 500 restaurants will continue to grow. We want to be around for the long-term.”

After nearly two years of negative comp sales, Atlanta-based midscale dining chain Huddle House saw comps turn positive in July. 

“We made a conscious effort to reformat our menu in May, [and] highlight certain products,” said Huddle House chief development officer Mark Whittle. “[It’s mostly the] same customers we’ve had, but we bring them in more frequently.” 

Changes Huddle House made included adding more opportunities to upsell menu items, and increasing the portion size of its popular hamburger and stepping up promotions around it.

The 46-year-old brand also plans to review its menu and roll out a refreshed store prototype.

“I think there’s a lot of positive momentum,” Whittle said.

Still, Riggs noted that going forward operators still will have to face a number of challenges, including the country’s high unemployment rate and the fact that the industry is not expected to grow in the next decade.

“It will be a battle of market share,” Riggs said. “Share growth is going to come from someone else.”

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