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Traffic trends offer positive signs for industry

Rising gas prices, unemployment pose threats to recovery, NPD warns

Higher gas prices and persistent unemployment may threaten a sustained sales recovery this year, but guest traffic trends from late 2010 offered encouraging signs, The NPD Group said Wednesday.

Traffic patterns started looking up for the restaurant industry in the second half of 2010, NPD found, as visit declines narrowed in several segments to produce flat traffic for the fourth quarter, compared with a 3-percent decline in restaurant visits for the fourth quarter of 2009.

While midscale and casual-dining restaurants both saw traffic decline in the fourth quarter, the quick-service sector logged a 1-percent increase in traffic while visits to fine-dining restaurants rose 3 percent for the period. The NPD noted that fine dining had been hit hard during the recession, registering double-digit-percent traffic declines in every quarter of 2009.

More traffic trends from the NPD Group:

NPD also found that total spending at restaurants increased in the last three quarters of 2010 — up 0.7 percent in the second quarter, 1.8 percent in the third quarter and 2 percent in the fourth quarter — resulting in a 1-percent increase in total foodservice spending for the year.

A key contributor to spending increases was improving “nondeal” traffic trends, or visits to restaurants that don’t involve a coupon or deal, said NPD restaurant industry analyst Bonnie Riggs. Nondeal traffic rose 1 percent in the fourth quarter, while deal traffic was flat, after increasing in previous quarters,

“What operators really need to understand is that consumers are still looking for the best value, not necessarily the cheapest price,” she said. “They do want to move away from steep discounts, but they will have to come up with other kinds of offers. They can’t move away abruptly from deals, because right now that’s what’s been helping and driving traffic.”

Riggs expressed concern that steadily rising gas prices, which surpassed $4 a gallon in her home market of Chicago on Wednesday, could derail the industry’s traffic and sales momentum.

“It’s going to take us another year and a half to two years to get back to the 61 billion or so annual visits to restaurants we had prior to the recession,” she said. “Now we’re starting to see these things looming, and it’s like, ‘Here we go again.’ Just because nondeal traffic is picking up, we can’t move away from giving deals or incentives; it has to be gradual. That’s especially true for young people, age 18 to 34, who are the heaviest restaurant users but also have the highest unemployment rate.”

In the past week, some of the latest restaurant companies to report fourth-quarter earnings linked improvements in same-store sales in part to positive guest counts, though most restaurants are considering moderate menu price increases to hedge against expected inflation. Domino’s Pizza, Chuck E. Cheese’s and Morton’s The Steakhouse all cited increased traffic as contributors to fourth-quarter same-store sales gains of 6.3 percent, 3.9 percent and 5.3 percent, respectively. For the latest restaurant earnings, visit’s Finance section.

Contact Mark Brandau at [email protected].

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