The country is facing a national economic crisis, but the way it’s affecting different geographic regions—and the restaurants in those regions—varies widely, according to new research from The NPD Group.
In a recently released report called “Driving Sales in Challenging Times,” the Port Washington, N.Y.-based firm examines the economic factors affecting consumer-dining behaviors in different parts of the country and builds a case for the growing importance of local marketing. The report was compiled using a combination of NPD CREST, or Consumer Reports on Eating Share Trends, data; unemployment data from the U.S. Bureau of Labor Statistics; and the Beige Book, the Federal Reserve Bank’s report on current economic conditions in 12 districts based on anecdotal information from bank and branch directors as well as business contacts, economists, market experts and other sources.
“It’s not all doom and gloom in every single area,” said NPD analyst Bonnie Riggs. “Depending on where your stores are, you have to have different strategies in place.”
While overall restaurant industry traffic was relatively stable in 2008, there were areas of the country where restaurant operators found it both more and less difficult to conduct business, NPD found.
According to the data, seven out of the Federal Reserve’s 12 designated districts saw traffic declines in 2008, versus the prior year. Only three saw positive traffic: District 6, which includes Alabama, Florida and Georgia; District 9, which includes Minnesota, Montana, North Dakota and South Dakota; and District 12, which includes Arizona, California, Idaho, Nevada, Oregon, Utah and Washington.
There was no change in traffic in District 5, which includes Maryland, Delaware, North Carolina, South Carolina, Virginia, West Virginia and the District of Columbia; and no change in District 11, which includes Louisiana, New Mexico and Texas.
Lower growth in unemployment and increased unit availability are among the reasons that some areas fared better than others, according to NPD. This is most evident in regions such as District 11, where consumer visits to restaurants held at levels recorded a year ago.
Faring worst were Districts 4 and 7, which include Michigan, Indiana, Ohio, Illinois, Wisconsin and Iowa, where per-capita restaurant meals and snacks declined 5 percent from a year ago.
“Industry performance is related to disposable income, [but is] also tied to unemployment,” Riggs said.
In 2008 Michigan, the center of the collapsing automobile industry, recorded the highest unemployment rate in the nation. The state’s unemployment rate in 2008 reached nearly 11 percent, up from 7 percent the year earlier. Others states in the region also saw unemployment rise dramatically last year. Unemployment rates each hit 8 percent in Indiana, Ohio and Illinois. Wisconsin’s rate was 6 percent, and Iowa’s was 5 percent.
Across the country in District 11, unemployment was lower and grew at a slower rate than in many other areas. In 2008, the unemployment rate rose to 6 percent in Texas and in Louisiana, up from just 4 percent in the prior year, and to 5 percent in New Mexico, up from just 3 percent.
Nationally, the unemployment rate rose from 4.9 percent in January 2008 to 7.2 percent in December 2008, according to the Bureau of Labor Statistics.
For 2009 NPD predicts that the areas with the highest levels of unemployment likely will see traffic declines again, while areas with relatively low unemployment may continue to fare better than others.
Unit expansion, or lack of it, is also a contributing factor to performance, according to NPD. The total number of units in Districts 4 and 7 declined 1 percent in 2008 from the year prior. Most operators closed units in this area in 2008, except for major chains, or those with 500 or more units, which saw a 1-percent increase in unit counts. Meanwhile, midsized, or those with 100 to 499 units, and small chains, those with three to 49 units, registered a 1-percent decline. The number of independent units declined 2 percent. Hardest hit were minor chains, or those with 50 to 99 units, which saw a 7-percent decline in unit counts.
In contrast, total units in District 11 increased 1 percent in 2008. Large chains performed best, increasing units by 2 percent, while midsized chains and independents each registered 1-percent increases. Small-chain unit growth was flat, and minor chains saw their number of units shrink by 4 percent.
While it has been especially challenging to drive traffic in certain parts of the country, some operators have proven that local marketing efforts help.
Carpinteria, Calif.-based Carl’s Jr., which has more than 1,000 units in 13 Western states, long has employed local marketing strategies but says it has seen increased interest in local-product promotions from its franchisees of late.
“In the current economic climate, we’ve had more interest from our franchisees to develop more promotions to address consumers’ economic needs,” said Brad Haley, executive vice president of marketing for CKE Restaurants Inc., parent of Carl’s Jr. and Hardee’s. “There’s more of an appetite for these things now.”
To help drive traffic, the company offers its franchisees several options, Haley said. For example, one option lets franchisees offer consumers the option to upsize a small combination meal for a small fee or no charge. In troubled areas, he said, a franchisee might choose to offer upsizing at no charge, or to employ multiple kinds of deals for a small additional charge.
“Local marketing doesn’t change the overall trend in a market, but it can enhance the trend if you choose to participate,” Haley said.
It’s not discounts, but a focus on value perception that is driving traffic at Austin, Texas-based Free-birds World Burrito, a fast-casual concept owned by Tavistock Restaurants. The 23-unit chain reported double-digit same-store sales increases in 2008, which it attributes, at least in part, to a commitment to local marketing.
“We spend most of our time…getting people in [our restaurants] that can connect with our guests…getting out there making connections,” said Peter Gaudreau, vice president of brand development for Freebirds. “Everything we do at Tavistock Restaurants is all about that emotional connection, which is equal to local marketing.”
To keep Freebirds front of mind, the chain also relies heavily on community outreach efforts, including encouraging each unit to partner with a local charity.
“People want to do business with their friends,” Gaudreau said. “That’s what they love about us. It’s not about the $6 value meal. It’s about what the guests take away experientially.”
“We’ve had to step up our game during this downturn to continue to move sales forward,” said Nick Vojnovic, president of Beef ‘O’ Brady’s. “This is not the time to hunker down. You have to be out there making an impression and giving your guests more reasons to dine with you more often. The partners that optimize local marketing efforts are at the top of our sales charts each year.”
While the concept of differences among regions is elementary, industry experts say many restaurant operators don’t understand the benefits of local marketing or how to apply local-market intelligence to decision making.
“Operators may have a broad picture, but they need to know regionally,” Riggs said. “[They] can’t look at it nationally.”
Nation’s Restaurant News has an exclusive agreement to obtain the NPD Group data and research findings that appear on the Consumer Trends page.