State of the industry:
Food service

Simple ingredients and the search for an authentic experience add up to a challenging marketplace

by Monica Watrous

The pace of restaurant industry growth has accelerated, driven by lower gas prices, rising incomes and an improving job market. In 2014, the total restaurant industry grew 3.8% to achieve sales of $466 billion, according to Technomic Inc., Chicago. The industry is forecast to grow 5.3% this year, and restaurant cumulative growth is expected to surpass peak levels in 2007 by 2017, Technomic said.

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“Consumers are definitely more optimistic,” said Mary Chapman, senior director of product innovation at Technomic, in an August interview with Food Business News. “Confidence has returned to pre-recession levels. But consumers are still focused on value. It’s not about the lowest rock-bottom price as it is what they get for their money.”

Operators have faced mounting challenges this year from labor pressures, regulatory issues, higher food costs and an egg shortage in the wake of a highly pathogenic avian influenza outbreak. Still, more are optimistic about profit growth; forty-one per cent of operators surveyed by Technomic expect to generate higher earnings, up from a mere 9% in 2009.

Creating ‘craveable’ experiences is the focus of many quick-service chains.

“They’re optimistic overall because, long term, they see the worst of recessionary trends are behind us,” Ms. Chapman said. “They see that consumers are interested in dining out and learning about food… That said, there are a lot of people who want to feed those needs.”

Competition has emerged from convenience stores, improved grocery store offerings and on-line retailers, she said.

“What restaurants, particularly Q.S.R.s, are focusing on are things like ‘craveable’ items, the experience factor and the speed of drive-thru, which is always going to be faster than getting out of your car and going into a place,” Ms. Chapman said. “So, they’re trying to focus on what they do that these other guys can’t.”

Monthly sales at restaurants surpassed grocery store sales in late 2014, according to the National Restaurant Association, Washington. The gap between grocery store sales and restaurant sales began narrowing in 2010, as more consumers began purchasing groceries at alternative retail formats. December 2014 marked the first month on record that restaurant sales exceeded grocery store sales, and the trend accelerated in the months following. In June 2014, grocery store sales exceeded restaurant sales by $1.6 billion, and in April 2015, restaurant sales surpassed grocery store sales by $1.5 billion.

The fast-casual segment continues to be a major growth engine for the restaurant industry. Over the next five years, fast-casual restaurants are forecast to represent 38% of limited-service dollar growth, Technomic said.