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INDUSTRY UPDATE
2014 Restaurant Industry Forecast

The National Restaurant Association recently presented its annual outlook on restaurant industry opportunities and challenges for the year ahead. Based on analysis of the most current economic data and extensive surveys of operators and consumers, the NRA’s 2014 Restaurant Industry Forecast provides some valuable information and insights for all segments, including:

INDUSTRY SALES are expected to reach a record high of $683 billion in 2014. In inflation-adjusted terms, this will be an increase of 1.2% (up slightly from 1% in 2013). “In size and scope, the restaurant industry is larger than 90% of the world economies,” says Hudson Riehle, SVP, Research and Knowledge Group, National Restaurant Association. “If the industry were a country, its economy would rank number 20.” However massive that is, and while this will be the fifth consecutive year of real growth in industry sales, Hudson acknowledges that gains will remain below what might have been expected – in part due to the depth of the recession and in part because the recovery continues to lag well behind those of the previous four recessions. Illustrating the challenging environment that persists, the projection for real growth in limited service (quickservice and fast casual segments) is a modest 2.1% (down from 2.4% in 2013) and in tableservice (family, casual, and fine dining segments) only 0.2% – the third straight year below 1%.

A key factor in industry sales is consumers’ ability and willingness to spend. “CONSUMER CONFIDENCE has edged up but remains fragile,” reports Hudson. In fact, he says, the mindset of consumers has improved very little over the past several years – evidenced by their perceptions of the overall economy as well as their personal finances. NRA consumer research conducted at the end of 2013 found that 37% described the overall economy as “fair,” and about 50% gave it a “poor” rating. And despite the economy gaining momentum and the addition of nearly seven million jobs since 2010, consumers appear stuck in a recessionary mindset, rating the state of their own finances about the same in December 2013 as they did in December 2010. Nearly 60% still describe their personal finances as either fair (38%) or poor (20%). Also meaningful to the restaurant industry is the fact that, regardless of how they feel about their personal finances (including those who have a positive view), 42% of consumers said they are taking a wait-and-see approach and have cut back somewhat on spending until the economy improves; 34% say they are very concerned about the economy and have cut back significantly on spending. Nearly half say they aren’t dining out (43%) or ordering in (42%) as much as they would like, resulting in what the NRA calls “pent-up demand,” which is now elevated and well above pre-recession levels. Restaurants will likely be the beneficiaries of some increased consumer spending when the economic climate is more positive and consumers are more confident, perhaps soon – 35% of consumers think their household financial situations will be better in 2014 than it was in 2013.

JOB GROWTH always has been a key driver of restaurant sales, and this will be the case in 2014 more than any time in recent history, predicts the NRA. “It will continue to be an environment where consumers are very deliberative about where they spend their dollars,” Hudson cautions. However, an increase in the availability and security of jobs should unlock some spending. “Consumers’ cash on hand remains constrained but more jobs will boost not only consumers’ own financial situations but also their confidence in the economy – along with the demand for convenience.” While post-recession job growth has remained generally lackluster – by the end of 2013, employment still remained nearly one million jobs below the pre-recession peak – 2014 is projected to be the economy’s best job-creating year since the end of the recession. The NRA expects total U.S. employment to rise 1.8% in 2014 (the strongest increase since 2006). Income growth is also projected to accelerate – the NRA estimates that real disposable personal income will increase 2.8% in 2014 (up from a modest 0.8% gain in 2013 and, again, the strongest increase since 2006). “For an industry in which a large proportion of growth is driven by cash on hand, steady gains in disposable personal income are essential to boosting restaurant patronage,” says Hudson. The NRA expects eating-and-drinking places to add jobs at a solid 2.8% rate in 2014 – down from the 3.7% gain in 2013, but a full percentage point above the projected 1.8% gain in total U.S. employment. (The overall economy hasn’t registered job growth above 2.5% since 1998; during this time the number of eating-and-drinking place jobs jumped nearly 29% while total U.S. employment only rose 5%.)

Nearly half of quickservice, fast casual, and casual dining operators say they expect RECRUITING AND RETAINING EMPLOYEES to become more difficult in 2014. Fine dining operators were the least likely to express concern about competition for labor, but nonetheless approximately one-quarter of them say it will likely become more challenging. As a result, restaurant operators across all segments intend to focus more on labor issues this year – roughly half of limited service, fine dining, and casual dining and more than a third of family dining operators are planning to devote more resources to recruiting and retaining employees. Restaurant operators are also bolstering their training budgets in an effort to develop employees and to enhance overall productivity – 69% of quickservice operators expect to devote more of their resources to training in 2014, along with more than half in casual, fine, and fast casual dining, and 44% in family dining.

Elevated FOOD PRICES continued to plague restaurants in 2013, when average wholesale food prices rose 2%. In 2014, food prices are expected to be mixed, but continue to advance overall. “There could be some relief in certain commodity groups, meaning that prices would remain flat or down slightly,” reports Hudson. “One major exception is beef prices, which are already elevated and projected to move up higher than any other commodity group in 2014.”

Looking ahead to 2014, tableservice operators expect to face many of the same CHALLENGES that they did in 2013. Topping the list among family and casual dining operators is complying with healthcare reform; the economy is the most frequently mentioned top challenge in the fine dining segment. Quickservice operators’ top concern is complying with healthcare reform, and among fast casual operators, it’s building and maintaining sales volume. With consumer spending still constrained, the competition within the restaurant industry remains intense – almost 90% of tableservice operators say that competition within the tableservice segment will either become more challenging or remain the same in 2014. Tableservice operators are also battling the limited service segment for customers, with a majority of operators in family, casual, and even fine dining saying competition with the limited service segment will remain steady or intensify in 2014. Conversely, limited service operators expressed much less concern about competition with tableservice restaurants. (Only about one of 20 said tableservice competition was a significant challenge.) Competition is most intense for limited service within the segment itself – 90% expect it to become more intense or remain about the same. Fast casual operators are more likely to identify grocery stores as competitors, with 16% citing them as a significant challenge.

For more information on the 2014 Restaurant Industry Forecast by the National Restaurant Association, click here

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