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A taste of what's to come in consumer trends

This story is part of NRN's "2011 Forecast & Trends" special report.

The start of 2011 will bring with it thousands of New Year’s resolutions from restaurant customers to eat better, eat less or save more money. But luckily for operators, such promises to cut back don’t necessarily mean fewer visits to restaurants. Rather, they mean the continuation of behavior that’s played out through the Great Recession and the long, slow recovery since.

The consumption patterns likely to hold in the coming 12 months are the same dualities customers have exhibited during the economic downturn of the past few years, said Darren Tristano, executive vice president of Chicago-based research firm Technomic. Examples of those contradictions include demanding that lower-calorie and healthful dishes be made available but still opting for diet-wrecking, indulgent items, or splurging on a big-ticket menu item after long periods of shopping from a dollar or value menu.

No new austerity

Just as federal lawmakers spent all year campaigning to balance the federal budget with tough fiscal choices only to ignore a deficit commission and pass two more years’ worth of tax cuts, consumers feeling the need for further spending restraint might not necessarily undertake it themselves. Tristano said Technomic’s consumer research revealed that restaurant consumers aren’t planning to be any more austere in their dining-out behavior than they already have been.

“We’ve found that consumers don’t lie to researchers; they lie to themselves,” he said. “They just aren’t willing to accept that they are going to eat differently or have a lifestyle different from what they know. We have good meaning, but we generally go back to what we normally like: indulgence, impulsiveness and the extension of current behavior.”

What that means for operators, Tristano added, is that traffic trends likely will remain steady in 2011, and growth in average checks will come mostly from price increases.

Several public restaurant companies revealed near the end of 2010 that they either were testing price increases or would consider some this year, including McDonald’s, Texas Roadhouse and Ruth’s Hospitality Group. McDonald’s hinted that prices could rise 2 percent in the United States and 3 percent in Europe to offset expected commodity price fluctuation, while Texas Roadhouse had tested a 2-percent increase at a group of 25 restaurants in its third quarter of 2010 as a precursor to a systemwide price increase expected to roll out completely by the end of 2011’s first quarter.

Ready for price hikes

Tristano said consumers “not only are prepared for but probably also expect some moderate inflation,” as prices have risen in late 2010 and early 2011 for essentials such as gasoline. The rate of inflation for food at home is gaining parity with increases in prices for food away from home, he added.

“The price of gas is a good gauge of where we are, and we’re at 35 cents over a year ago,” he said. “We’ve had modest increases over the past year, and now that costs are going up, consumers are going to have to expect to see a 3-percent to 5-percent increase in 2011. Dollar value menus likely will remain a dollar, though, so lower- and middle-income groups will still see an opportunity for value in bundled meals and combos.”

Wendy’s/Arby’s Group seemed to grasp that consumer mind-set in the second half of 2010 when it shifted its marketing focus to everyday value, promoting a revamped My 99¢ value menu at Wendy’s and the $1 Value Menu at Arby’s. In an earnings call, the company’s chief executive, Roland Smith, credited that value focus in part for driving a 5.5-percent increase in same-store sales at Arby’s in the month of October. During that time, both brands paid attention to the higher end of menu development as well, rolling out Natural Cut Fries at Wendy’s and testing an Angus sandwich and a premium onion ring side at Arby’s.

Value still rules

The Bellwether Food Group, an industry research firm with offices in Boston, Chicago and North Carolina, found in its third-quarter “Quarterly Chain Restaurant Update” that, even while some of the biggest brands had significant gains in same-store sales heading into the end of 2010, customers’ recession-ready attitudes would stick around during the recovery and beyond.

“The economic times notwithstanding, the fundamental shift remains the same,” Bellwether’s principals wrote in the report. “Consumers have realized that their lives are just as fulfilled without going out to eat as often, that trading down works or [that] looking for better value is something everyone does now. For the chains, this means it remains a share-capture game.”

Analysts for both Technomic and Bellwether said the fast-casual segment is most likely to benefit in the near term from consumer sentiment, as people have been more likely to part with their discretionary income in restaurants that have high-quality offerings, freshness cues, adult decor and no tipping requirement.

Contact Mark Brandau at [email protected].

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