Future Looks Bright for Dining Establishments

Foodservice operators have to react to changing U.S. demographics, tastes and economics. That’s why some foodservice groups have partnered with a research company to track who is eating out, where they’re eating and why they chose that restaurant.

The International Fresh-cut Produce Association (IFPA) and NatureWorks contracted with Technomic to provide quarterly reports on customer and operator trends in the foodservice industry for one year. The goal of the research is to develop a framework for issues that are affecting the industry, said David Henkes, senior principal for the research.

Technomic is a foodservice industry research and consulting company that tracks consumer and operator trends. For the IFPA research, Henkes said there would be no primary research, but he would be using some of the consumer surveys and primary research that the company conducts daily. He would also be looking at proprietary research and journal articles to determine industry trends.

Henkes presented some of the initial findings at the IFPA Expo in May. He said he was optimistic about the long-term viability of the industry.

“People’s lifestyles have changed,” Henkes said. “Kids are not growing up with their parents teaching them to cook, so they’re foodservice savvy and they’re not going to revert back to cooking and start eating at restaurants less.”

There is plenty of room for growth in the foodservice segment, he said. According to the most recent research, more than 50 cents of every dollar spent on food is spent at a restaurant, even though 76 percent of meals are eaten at home. That amounted to about $481 billion spent on foodservice in 2005, up from $303 billion in 1994. The National Restaurant Association (NRA) estimates that in 2006, consumers will spend about $511 billion on restaurant food, a 5 percent increase over last year.

According to NRA, the average person spent $974 eating at restaurants in 2004, and that amount is expected to increase. But how much an individual is able to spend on eating out can depend on how the economy is doing.

“The shorter term is more dependent on economic growth,” Henkes said. “Disposable income is the closest indicator of what the health of foodservice is going to be.”

According to Henkes, disposable income is on the rise and the economy is showing signs of improvement. But even when the economy is doing poorly, not all foodservice niches suffer.

“Even in economic downturns, people trade down, not out,” he said.

When money is tight, customers will eat at cheaper restaurants, eat out less and order less food.

More Healthful Food

Foodservice customers are opting more frequently for healthier foods, according to the research. Henkes sees this as a growing area, because people typically eat healthier at home than they do at restaurants. He points to research that shows only 38 percent of Americans are satisfied with their eating habits, and 61 percent would like to cut down on the amount of food they eat.

The research also found that 69 percent of foodservice customers are overweight, and almost one-third of diners have high cholesterol, high blood pressure and/or are diabetic. This likely will have an effect on the foodservice industry because consumers will have stricter diets that they will have to follow.

“A lot of your customers are, at some point, going to be looking for a better-for-you option,” Henkes said. “They’ll be looking for an option that’s going to fit in with the medical diet that they’re on.”

But even if a restaurant offers healthier options, that doesn’t mean customers will order them.

“That’s one of the problems we run into. Consumers don’t equate ‘healthy’ to ‘tastes good,’” he said. “Anytime you put something on a menu that says it’s healthy, it’s the kiss of death for that item.”

Operators are looking for that “holy grail” of healthy food that tastes good, but one issue they run into is conflicting definitions of healthy food. For example, Henkes said consumers equate “fresh” with “healthy,” but that’s not necessarily the same definition the industry uses.

“So many menus use the word fresh, but it doesn’t refer to ingredients,” he said.

When most customers think of fresh food, they think, “It’s not pre-prepared or pre-packaged. It’s made right in front of me,” Henkes said.

Fresh-cut suppliers have the opportunity to build on that perception by incorporating into the broader definition of fresh. Henkes said it shouldn’t be a primary positioning tool, but it can reinforce the fresh position that restaurant operators have.

“Sandwich shops are perceived as fresh, but having fresh produce enables that position in the mind of the consumer.”

Subway is a good example of a restaurant’s “fresh” position, Henkes said. The franchise regularly shows up in the ratings, and that shows the company’s message is getting through to customers.

Growing Markets

Henkes said the biggest growth area will be in the fine-dining segment. The Cheesecake Factory was an example of a restaurant differentiating itself and seeing growth as a result.

“Casual dining has been on a growth tear,” he said. “They’ve become very ordinary.”

Customers are suffering from what he called “concept fatigue,” so smart restaurant operators should experiment more with their menus and designs. He said prices might decrease in casual dining restaurants.

“Some of the prices are getting a little high for your typical night on the town for a family,” he said. “Décor and value are suffering from some fatigue, and the smart ones are looking to reinvent some.”

However, many casual dining restaurants have carved out a unique niche in the market, Henkes said, because they offer a broad menu, good service, “fun” atmosphere and lower prices. He pointed out Applebee’s, Chili’s and Ruby Tuesday as well-positioned, casual dining restaurants.

The quick-casual segment, which includes Chipotle and Panera Bread, should also see continued growth this year. Customers have responded to quick-casual restaurants because they are more upscale, are considered “fresh,” adapt menus to new trends and can individualize meals.

The biggest growth segments last year were restaurants that offered a varied menu and specialty restaurants, which include barbecue, ethnic and white tablecloth establishments. Varied menu grew nearly 10 percent, and specialty grew 7 percent.

The foodservice industry goes through cycles, and with the competition in the market, operators will be looking to differentiate and separate the short-term goals from the things that are going to have long-term effects, Henkes said.

“They’ll be looking at strategic plans versus ‘what promotions do I have to run to meet my targets for next week.’”

For information about Technomic’s studies, visit www.technomic.com.