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NPD: Economic pressures lead consumers to eat out less

NPD: Economic pressures lead consumers to eat out less

Cutbacks in consumers’ discretionary spending, driven by such price pressures as rising gasoline costs, increasingly are impacting the foodservice industry as cost-conscious diners limit their visits to restaurants in all segments, according to market research firm The NPD Group.

Visits to restaurants per capita for the year ended this past May were down from a year ago, according to the data from Port Washington, N.Y.-based NPD. There were 207 visits per person to restaurants this year, versus 209 the previous year.

While two fewer visits per consumer may not seem like a dramatic cutback, NPD says the cumulative effect is significant.

“Two [fewer] visits from every individual in the U.S.—300 million people—that’s quite a slowdown,” said NPD analyst Bonnie Riggs.

Restaurant traffic rose just 0.6 percent this spring, compared with a 1.3-percent gain during the same period a year ago. Those modest gains most likely were associated with such macroeconomic issues as higher gasoline prices, which topped $3 in May.

“We’ve definitely seen a slowdown in the industry,” Riggs said. “Full service is suffering more than QSR, but even QSR has slowed.”

As of May, traffic at fine-dining restaurants and upscale hotels was down 4 percent for a second quarter in a row, according to the data. Midscale restaurants continued to take a hit, with traffic down 1 percent in the quarter ended in May after a 2-percent decline the previous quarter. Casual-dining traffic remained flat for those same two quarters. The only restaurant segment to show any traffic growth was quick service, which posted a 1-percent increase in traffic for the quarter ended in May. That figure, however, was down from the 2-percent growth seen in the same quarter of 2006.

NPD’s study also indicates traffic decreases primarily occur during traditional lunch and dinner times, while gains are coming from morning meals and late-evening snacks. According to NPD, morning meal traffic grew 4 percent in the quarter ended May 2007, compared with 3 percent during the same period a year ago, and evening snack grew 5 percent, compared with just 1 percent in the same quarter last year. In contrast, lunch and dinner traffic has been down for the last two quarters. Specifically, in the quarter ended May 2007, lunch traffic was down 1 percent and dinner traffic was down 2 percent.

Still, gains in morning meal and evening snack traffic are offset by the fact that those dayparts only account for 35 percent of total restaurant traffic, according to NPD. The big concern, Riggs says, remains the lunch and dinner slumps.

Consumers pinch pennies

NPD conducted in May a custom survey of more than 2,000 adults ages 18 to 65 and asked about their restaurant-visiting habits. Among all consumers surveyed, 29 percent said they were visiting quick-service restaurants less often and 40 percent said they were visiting full-service restaurants less often. Among the respondents who had visited quick-service restaurants in the past month, roughly a quarter of them said they were visiting those restaurants less often than in the past. Similarly, about a third of respondents who had visited full-service restaurants in the past month said they also were cutting back on visits.

Both quick-service and full-service patrons indicated they were eating at home more often. In fact, 42 percent of quick-service consumers and 50 percent of full-service consumers cited that as the primary reason they were eating out less often.

When asked why they were eating at home more often, 61 percent of quick-service customers and 66 percent of full-service consumers indicated that it was because preparing their own meals was cheaper.

High gas prices figured prominently in the decisions of both quick-service and full-service consumers to eat at home more often.

According to the data, 30 percent of quick-service patrons and 36 percent of full-service patrons surveyed cited high gasoline prices as a factor in their decision to eat at home.

“We see a close correlation between rising gas prices and [restaurant] traffic,” Riggs said.

The price of gasoline reached an all-time high in May 2007 at $3.19 a gallon, coinciding with the slowdown in restaurant visits, according to NPD data.

Financial issues seem to be the key reason consumers are cutting back visits to full-service restaurants. In fact, the other top reasons consumers cited for visiting full-service restaurants less often were that those restaurants were too expensive, they were going to all restaurants less frequently and were responding to changes in their fiscal situations.

Quick-service patrons also shared those price concerns, but also cited “food too high in calories” and “not enough healthy options” at those restaurants.

Chains emphasize value

“When we have all this [economic turmoil] going on, more than ever consumers are asking where they can get the best value,” Riggs said.

Accordingly, Irvine, Calif.-based El Pollo Loco is among the operators trying to combat consumers’ visit cutbacks with lower prices. The 375-unit grilled-chicken chain has had some success with occasional special-value offers, such as a variety of chicken leg and thigh promotions that vary in price depending on the number of pieces.The chain most recently ran a nine-piece leg and thigh offer for $6.99 in August and again in early September.

“When we run those offers we see a tremendous increase in traffic,” said Karen Eadon, El Pollo Loco’s senior vice president and chief marketing officer. “Because of the economy we have done it more than we would have traditionally.”

While such limited-time promotions have been highly successful, Eadon says the “healthy, good-for-you food for families at a great price” is central to the chain’s concept. She cites the chain’s flame-grilled chicken and such side dishes as pinto beans, steamed vegetables and corn on the cob as healthful choices. The chain’s eight- 10- and 12-piece chicken meals with sides and tortillas that average about $5 per person are aimed at families.

“It really comes down to providing relevant value to your consumer base,” Eadon said.

A number of other chains are adding new meal deals to draw cash-strapped diners, including Nashville, Tenn.-based Shoney’s, which recently unveiled four new entrées as part of its new Two Can Dine for $10.99 limited-time offer; and Louisville, Ky.-based KFC, which just rolled out its $2.99 Deals, a plated meal with either a chicken breast, a drumstick and thigh, or two Crispy Strips, along with a side item and a biscuit.

When it comes to giving consumers good value, however, price isn’t the only thing operators should worry about, Riggs says.

“The best value for their money doesn’t always mean the cheapest,” Riggs said.

That sentiment is something Greenwood Village, Colo.-based Red Robin has taken to heart. Instead of reducing product prices or increasing portion sizes, the 370-unit casual-dining chain, known for serving 22 different burgers with Bottomless Steak Fries, aims to highlight its overall dining experience with a variety of alternative promotions.

“We feel like part of the value at Red Robin is the dining experience within our restaurant,” said Kim McBee, Red Robin’s vice president of marketing. “What we’ve been working on is how to create an environment for family and friends to enjoy.”

For a number of years the chain has been running nontraditional promotions through its eCLUB, including contests in which consumers are invited to submit 100-word essays for the chance at various prizes.

Though it’s hard to track the impact on traffic, McBee said, consumer participation in such promotions has increased by 30 percent to 40 percent a year.

Among the chain’s newest brand-building efforts is The Next Gourmet Burger Kids’ Recipe Contest, which invites kids to invent burger recipes for the chance to have their creations featured in Red Robin restaurants across the country.

“Whether it’s good economic times or bad economic times, we want to be true to who we are,” McBee said.

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