The restaurant industry is expecting sales of about $799 billion in 2017 as consumers continue to allocate more money towards eating out, the National Restaurant Association said in its annual industry outlook this week.
The $799 billion increased 4.3 percent over last year’s estimated sales of $766 billion, and 1.7 percent when adjusted for inflation. That rate of growth is slightly better than the 1.5 percent increase estimated in 2016.
And much of the growth is coming from limited-service options as consumers continue shifting their spending toward quicker, more convenience-oriented fare. Sales at quick-service restaurants are expected to increase 2.5 percent, when adjusted for inflation, to $234 billion.
Full-service restaurants, meanwhile, are expected to see 1.1 percent growth to $263 billion.
“The real growth rates for quick service is more than double than that of full service,” said Hudson Riehle, senior vice president for the research and knowledge group at the association. “That’s been the case for quite a few years now.”
Projected growth is not evenly spread across the country. More growth is coming from states in the Southeast and Western states — which, not surprisingly, is also where the population is growing. Sales will be slowest in the Midwest.
The industry has grown at a steady pace since emerging from the brutal financial crisis that led to a rare absolute decline in restaurant sales in 2009. Yet the rate of growth has slowed, as the industry has become saturated with dining options and consumers keep a tighter control on spending.
Between 1970 and 2017, Riehle said, the compound annual growth rate for the industry has been 6.4 percent. Since 2007, however, that rate of growth has slowed to 4.3 percent.
“The fact remains that growth rates are definitely more moderate than the pre-recessionary period,” Riehle said. “That’s the environment we see in the years ahead.”
Restaurant chain executives have spent the past 18 months fretting about declining traffic and weak same-store sales, and many have suggested consumers have been skittish. And Riehle said that is a clear factor in slowing, post-recessionary sales.
While the economy has grown and unemployment has fallen, incomes have grown only modestly. The restaurant industry is competing with other consumer expenditures like cars and cell phones.
“With income growth positive yet still moderate, consumers are more diligent about their spending,” Riehle said. He noted that 13 percent of consumer spending is on food, and about half of that is at restaurants.
The NRA’s numbers feature a wide variety of places where people eat food, including restaurants but also grocery store prepared foods, hospital cafeterias and concession stands at baseball stadiums.
The traditional restaurant piece of that business is expected to grow 1.7 percent, adjusted for inflation, to $571.5 billion from $547.0 billion.
That, plus restaurant unit growth from new and existing concepts, have made for a competitive industry: There are more than 1 million places where consumers can get a prepared meal.
“This is a competitive environment, not only among other operators, but also in terms of options and necessary spending the consumer now has — cell phones, for example,” Riehle said.
The competitiveness of the industry is driving a wave of technological innovation that hasn’t been seen in years, and perhaps ever. The industry has been focused on adding technology, such as mobile ordering and payment technology as well as delivery and options such as kiosk ordering.
“It’s actually more important to think about it as points of access than bricks and mortar,” Riehle said.
Indeed, more industry access is coming from take-out, to go and delivery formats, rather than traditional dine-in options. Even traditional casual dining and other dine-in concepts see the future in to-go business.
“It’s important to note that restaurants are in a better situation than they were a few years ago,” Riehle said. “But the fact is, a lot of growth in the industry has not really come from more people going through the doors.
“The market is much more off-premise oriented.”
The technology focus could help address the industry’s biggest challenge: Labor costs.
Hourly wages last year increased 4.2 percent in the industry. Restaurants offset those higher costs with price increases and by taking advantage of lower food costs.
But higher minimum wages and a tight labor market are driving up wages. Operators say in surveys that their biggest current concern is the recruitment and retention of labor, Riehle said.
Much of the technology integration could help offset that by increasing labor productivity — a rarity in an industry that depends heavily on people power.
“Productivity growth in the restaurant industry has really been quite minimal over the past decade,” Riehle said. “Sales per employee in the industry is still low not only compared to other retailers, but it’s low compared with other industries.”
The good news for restaurants is that consumers still like eating out. Two of five adults say they don’t eat out as often as they’d like, Riehe said. So, despite heavy competition and slowing growth, that means there’s still plenty of growth potential.
“If you look at it on a 21-meal [per week] basis, consumers eat five or six of those away from home,” Riehle said. “You’re still talking 13 to 14 traditional, at-home occasions. There is still considerable upside to be had.”
Contact Jonathan Maze at [email protected]
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