The following story is part of “Top of Mind,” a special report covering today’s largest concerns among the restaurant operator community. This report was created in anticipation of MUFSO, taking place Sept. 30-Oct. 2, where hundreds of operators gather to share ideas and best practices. Find MUFSO coverage at NRN at the Show.
While some campaigning politicians insist the economy is improving, American consumers remain doubtful — and that’s concerning to operators who count on the disposable income of optimistic guests.
The Conference Board said Aug. 28 that its Consumer Confidence Index was at 60.6, its lowest level since November 2011, despite improving marginally in July to 65.4. The Expectations Index also slid in August to 70.5 from 78.4, because of consumer apprehension over business and employment prospects.
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That fragile sentiment might be news to some, but restaurant analyst Mark Kalinowski of Janney Capital Markets said good restaurant operators knew of the downward trend well before the Conference Board delivered its data.
“Smarter restaurant companies look at their daily sales to tell them what’s going on, so they already saw it,” he said.
Several companies’ aggressive deal pitching is another sign operators sense buyer timidity, he said.
“That activity has really picked up recently, which is a sign of sales weakness,” Kalinowski said. “While they’re not lowering menu prices, they are offering deals.”
Kathy Hayden, foodservice analyst at Mintel Menu Insights, said her observations parallel what operators are seeing.
“People are still very cautious with their money,” she said. “But even though they may be trading down and spending at QSRs and LSRs, even those companies may see slight [sales] drops.”
Behind consumers’ low expectations for broader economic improvement, she said, they’re also facing more basic trials, such as increasing fuel prices.
“When you’re in this time of year, driving around buying kids back-to-school supplies and clothes, seeing $4 prices again at the pump and hearing that the company isn’t going to give pay raises, those are really what’s hitting them,” she said.
While Hayden and Kalinowski believe most restaurant companies have done all they can to avoid noticeable price increases, each expects the current drought will force them to make changes to offset soaring commodities costs.
“They’ll edge up, probably in very small increments,” Hayden said. “Those problems have to be offset somewhere.”
According to Robert Bresnahan, president and chief executive of Trilateral Inc., a purchasing and risk management advisory firm, most large restaurant chains “are already prepared to raise prices” and will throughout September as more definitive crop harvest reports come in. He’s recommending that his clients “be aggressive in initially raising prices,” because if they are “cautious, they’re never going to catch up on prices. I don’t see it being possible to hold the menu board where it is.”
Kalinowski said that determining exactly how much sales softened this summer would have to wait until third-quarter reports are released. July comparable-sales trends, Janney added, were negative for many of the chains he follows, but his best estimates revealed August sales had held their own against positive comps notched in 2011.
What will turn consumer sentiment from sour to sweet? Hayden said a cheaper fuel and more jobs.
“Those two things are the big ones,” she said, adding that cultural shifts aren’t making life easier for even those who are employed. “The people who have jobs are overworked and time crunched. They lack the time to eat out at nicer places. But they’ve got to eat somewhere, and I still think inexpensive food is going to rule.”
This special report was originally published in the Sept. 17 issue of Nation’s Restaurant News. Subscribe here.
