It would seem as if recession-weary consumers would be ready to make like Paris Hilton and spend, spend, spend. But it appears that a more Frugal Fanny-like consumer is emerging from the Great Recession, according to a new report from market research firm The NPD Group.
NPD’s “What’s Next on the Road to Recovery” report, which explores how consumers’ habits related to food and beverage purchasing and usage have been affected by the recession, reveals that many are not optimistic about their current financial situation. Furthermore, nine out of 10 consumers say they plan to continue being frugal — including limiting their spending on food and beverage away from home — for at least the next six months and perhaps well beyond.
“When they are feeling this pessimistic, it’s still a tenuous situation,” said NPD director of product management Dori Hickey. “Consumers are still wary and cautious.”
Strategies to save
While consumers surveyed in April are being more frugal overall, they have adopted some specific strategies to save money. At the top of the list is the decision to spend a lot less on restaurants — including dining out, takeout and delivery — and entertainment outside the home. Two-thirds of consumers said they have cut back spending on dining out, takeout and delivery. More than half said they are going out less for entertainment. While consumers surveyed cut back on restaurant visits and entertainment outside the home, they also said they were spending much less in other areas, including apparel/footwear, personal care, groceries, leisure travel, entertaining family at home, entertainment socializing at home, consumer electronics and housewares. In contrast, a small group — about one in 10 — said they have increased spending somewhat on groceries and entertaining at home.
Not only are consumers pessimistic about their current financial situation, but most surveyed also are not hopeful that things will improve anytime soon, NPD found. Just 14 percent of consumers surveyed said their household financial situation is better than it was a year ago. Meanwhile, 38 percent said they are worse off, and nearly half said their situation was unchanged. Looking ahead, one in five consumers expect their financial situation to be worse in 12 months.
When questioned about their eating-out habits six months from now, consumers said they plan to continue to keep a close eye on spending. According to the data, the leading way consumers plan to control their expenditures is by monitoring spending on food, beverage and entertainment.
One positive shift for the restaurant industry is that grocery food prices and restaurant prices are starting to converge, according to the Bureau of Labor Statistics’ Consumer Price Index for Food In-Home and Food Away-From-Home. Prices were dropping faster for grocery items in 2009 than they were for food away from home, Hickey said, and now they are almost even.
“As manufacturers pass on price increases, it creates more opportunity for restaurant operators,” Hickey said. “But it takes creative thinking and serious high-priority execution to make it happen.”
Fighting frugality
Despite being weary of consumers’ cost cuts, restaurant operators will have to continue to find new ways to attract, retain and even emotionally uplift consumers, industry experts say. Four foodservice consultants who’ve seen recessions come and go offer some suggestions:
• Capitalize on coupon users. While this longer-than-usual recession has taught restaurant operators how to lure cash- conscious consumers into their establishments with limited-time offers, discounted prices and coupons, operators need to turn those visitors into repeat customers to achieve long-term success.
“There is a tendency for servers to provide a lower level of service to customers who come in on a discount because they perceive their tip will be less,” said Dennis Lombardi, executive vice president of foodservice strategies for Ohio-based WD Partners. “So servers need to be educated and aware that these people coming in with coupons — many of which are first-time customers — are a chance to enhance the restaurants business in the future.”
While many coupon users will come in for the discount and never come back, a portion of them will, Lombardi continued. To win those consumers over, he suggests that operators educate their servers about the opportunity, teach them to identify a first-time customer and then notify a manager. A manager should then do something to make the consumer’s experience different — comp a dessert or an entrée, ask the chef to come out from the kitchen and talk to the table, etc. And, he added, to help motivate servers, they should be rewarded with a $3 to $5 bonus for identifying the potential repeat customer.
“Some will scoff at this,” Lombardi said. “But there’s no cheaper marketing you can have.”
• Provide the feel-good factor. Forget discounts and menu deals. What matters — in good times and in bad — is making the customer feel great. When times are tough, the key is to offer something that comforts consumers, said Aaron Noveshen, founder of The Culinary Edge, a San Francisco-based food and beverage consultancy. Give them “something that comforts them. Something experiential that makes them feel better,” Noveshen said. “The 99-cent value meal — there’s no connection to that.”
To accomplish that, Noveshen advises operators to keep the steps of service simple and empower their staff to make customers feel like they are being taken care of. Never let servers ask a table if everything is OK.
“Servers should engage in a specific question, create a conversation,” Noveshen said. “It opens up the door for an opportunity to build a connection to the restaurant.”
David Kincheloe, president of Denver-based National Restaurant Consultants, agrees that making customers feel good is always key, but especially so in these challenging times. Operators “need to concentrate tremendously on front-of-the-house operations,” Kincheloe said. “Make sure drink glasses are always full, train servers and hosts to make customers feel great.”
• Adapt or die. With such fierce competition for consumers’ shrinking dining-out dollars, operators must continue to evolve or risk extinction. “Restaurant operators are beginning to realize they have to adapt successfully to the whiplash of the economy, regulatory changes and environmental concerns and, of course, consumers’ cost cuts,” said Linda Duke, founder of Duke Marketing. “Operators must learn to increase the effectiveness of marketing programs, implementing effective strategies.”
By developing marketing programs that tell compelling stories and create an emotional bond, not sell specific products, operators can improve the effectiveness of their efforts, Duke said. “If you can make emotional connections with your customers at multiple touch points — the minute they walk in the door, when they enter the brand, with social media — you can start looking at your customers as brand advocates and your loyal, emotionally connected customers will create word-of-mouth and drive sustainable growth.”