In its 2012 Restaurant Industry Forecast, the National Restaurant Association reported that, in addition to an overall decline in real median household income, there was a sharp drop in the number of higher-income households. Those with annual incomes of $100,000+ declined 5% between 2007 and 2010 (in contrast with having increased 74% between 1990 and 2007), as did the number of households between $75,000 and $99,000. In total, there were two million fewer households with incomes of more than $75,000 in 2010 than in 2007.
The implications for the restaurant industry are important, according to Hudson Riehle, senior vp, research & knowledge group, because these higher-income households represent the majority of spending in restaurants. “If there’s one economic indicator that consistently correlates with growth in the restaurant industry, it’s rising household income. Over half the spending (56%) in restaurants comes from households with annual incomes over $75,000. And the higher the income level, the higher the spending, which means that when these households cut back, it has a disproportionate impact.” Hudson reports that while still below pre-recession levels, higher- income households have seen increases in net worth. However, their confidence – an important factor in spending – is still muted. “Even these households are much more deliberative in spending today, including restaurant spending, than they were before the recession. It’s a consciousness – higher income households are still judicious.
“Over the past few years, we have tracked consumers’ pent up demand for restaurants. When you look at this data by household income, you still have 25% in the $75,000+ category reporting they aren’t using restaurants as much as they’d like. This is down from 38%, so they are going back into restaurants, but there’s still opportunity.” What will it take to coax higher-income individuals into restaurants more often? “It’s important to keep in mind how competitive the industry is, even in good times, so remaining top of mind is the challenge. The focus should be on well-targeted and integrated advertising, marketing, and social media campaigns to increase trial and grow sales.”
For the health of the industry, Hudson concludes, “Operators’ focus now must be on leveraging and increasing sales – especially in this key demographic – and to communicate the value of the dining experience, whatever the price point.”
Source: National Restaurant Association