Martin O’Dowd runs Hurricane Grill & Wings, an emerging casual-dining brand of 47 stores across eight states. Since early 2009, O’Dowd’s witnessed consumers increasingly let loose. In that time, Hurricane has embraced a 40 percent jump in revenue, much of it driven by a surge in 2011 business.
“Americans aren’t good about being depressed. They want to go out and pamper themselves, and that includes dining out,” says O’Dowd, an industry veteran who’s held executive positions for a half-dozen restaurant brands.
For 2012, however, O’Dowd foresees consumers putting on the brakes and a slowdown from 2011’s rising tide.
“Unfortunately, I think people will get conservative again. There’s so much economic turmoil around and so much we don’t understand,” he says.
O’Dowd is no pessimist; his grounded outlook for the coming year is shared by many restaurant industry operators and analysts.
A still-sluggish economy breeds a stagnant consumer
In 2009 and 2010, restaurants experienced eight consecutive quarters of declining traffic, a trend unseen in a generation. While the numbers turned positive in early 2011, few industry veterans foresee a 2012 rush.
Chicago-based research firm Technomic, in its latest industry forecast for full-service restaurants, predicts 2.5 percent nominal growth and zero real growth in 2012. The NPD Group shares a similarly brooding forecast: Restaurant industry traffic will be positive, but still weak. NPD puts 2012 check growth at 1.4 percent and traffic growth at 0.7 percent.
Many point to the nation’s lingering 9 percent unemployment rate and the election as two primary reasons restaurant numbers will remain flat. Few see unemployment rates declining or U.S. legislators enacting a major fiscal stimulus to jumpstart growth.
With continued residential real estate woes, high oil prices, and a volatile stock market added in, consumer confidence is expected to remain stagnant throughout 2012. Furthermore, many analysts expect GDP growth in 2012 to hover near 2–3 percent. The modest gains, though perhaps enough to ward off another recessionary dip, aren’t expected to turn the nation’s economic tide or inspire consumer confidence in 2012.
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“There’s a close relationship between consumer confidence and restaurant traffic. Until we see that confidence improve, we’re not going to see much of anything change,” NPD Group restaurant analyst Bonnie Riggs says, adding that her agency holds a tempered outlook for the next decade, given restaurant traffic’s struggles to keep pace with population growth.
Though consumer behavior is wildly difficult to forecast, industry analysts and restaurant leaders look into their crystal balls and reveal these consumer predictions for the coming year:
Food, service, and environment
Call it the Holy Trinity: quality food, service, and environment for a reasonable price is the unwavering standard in the restaurant world, the driving consumer sentiment operators must respect.
“It’s not that consumers will stop dining out; it’s just that you better deliver,” Riggs tells operators.
As an increasingly educated consumer base becomes more quality-conscious and food-savvy, consumers want premium products—Angus beef rather than ground chuck—and words like fresh and homegrown prominent on the menu.
“Restaurants can no longer push whatever they want out of the kitchen,” O’Dowd says. “The consumer simply doesn’t allow it.”
With consumers also toughening their stance on better service for their hard-earned dollars, operators will be forced to respond. Hurricane, for instance, has retooled its management program and increased the number of people who must pass through the training.
On the atmosphere side, many restaurants are taking aim at modernized, comfortable, and lively quarters. Hooters is remodeling about 20 percent of its original Hooters locations and adding outlets in new spots, including Times Square in Manhattan.
“We’re an escape from the rigors of everyday life, and we try to position ourselves as such, but we need to make sure we’re executing on all fronts,” Hooters COO Sal Melilli says.
For those who can meet consumers’ strict demands on all three fronts, success can be had in 2012 and beyond.
“People want escapism, more so in this economic climate than we’ve seen in a while, and if you can bring quality to all levels of the restaurant, you’re putting yourself in a spot to succeed,” Rainforest Café founder and restaurant consultant Steve Schussler says.
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More price-based decisions, less risk
Cracker Barrel president and CEO Sandy Cochran calls the pressures on consumers “enormous.” Given labor uncertainty and tightening household incomes, she believes consumers will be even more focused on value and price in 2012.
“Consumers only have so much money in absolute dollars for discretionary spending. And, relatively speaking … it’s likely that value perceptions have been altered,” Cochran says.
In the NPD Group’s recent “Changing Consumer Mindset” report, 76 percent of restaurant patrons fell into the “controlled spenders” category.
“So when they open their wallet, we better meet their value expectations,” Riggs says.
To many, the value expectation concerns the food-service-atmosphere triumvirate. However, some see consumers curtailing the “value proposition” mindset and adopting strict price-based decisions. Technomic’s director of product innovation Mary Chapman expects a rise in consumers looking for discounts, buying less expensive items, and using coupons.
“If a concept doesn’t have a compelling differentiating factor,” she says, “consumers will tend to base the decision on price.”
And as the consumers continue pinching pennies and sacrificing, many predict they will limit restaurant spending to the eateries that inspire confidence.
“Since people are eating out less, they want to be confident in the restaurant they choose. They’re not going to take chances 3–4 times each week, and they’re going to go to the places they trust,” says Kevin Goldfein, operator of Rosti Tuscan Kitchen, a casual-dining chain with three locations in southern California.
Continued trading down
Unfortunately for full-service restaurants, consumers are expected to continue trading down to quick-service operations and, in particular, fast-casual outlets, the recession-era darlings that have witnessed year-over-year sales and traffic gains.
“For the full-service operator whose menu is at the lower end of the scale, the consumers see fast-casual options as just as good, if not better, and without the taxes of time and tip,” Chapman says.
Fast casuals, which blend quick-service convenience with the food expectations of casual dining, continue to be a favorite of Gen Y, many of whom are entering their prime dining-out years. With their strong value component and quality perception, Riggs says, fast casuals hit on the demographic’s quest for convenience and value.
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“This is a group looking well beyond the food and, as they move into their heavy-use era, operators will have to pay attention to what this group wants from their dining experiences,” Riggs says.
To respond to the trading-down wave and fast casual’s market-stealing ways, Chapman says full-service operators must differentiate themselves and cater to the lifestyles of discerning customers. For some full-service operations, that could mean delivering on convenience, largely in the form of carryout.
Given the on-the-go nature of American life, particularly for families, carryout operations offer consumers the food they want sans drinks and, in most cases, gratuity. To prepare for expected increases in its take-away business, Hooters will continue to tinker with its to-go packaging and test online as well as text ordering throughout 2012.
“If the consumer wants convenience and value, then we want to make it as easy as possible for that consumer to make a decision and purchase,” Melilli says.
An evolving palate
According to Technomic’s research, consumers are increasingly driven to try new flavors. In a 2011 Technomic survey, 42 percent of diners said they were more likely to try new flavors today than they were a year ago. Yet more, 52 percent, express a preference for restaurants that offer unique and original flavors; in contrast, only 42 percent checked that box one year ago.
The more daring, adventurous consumer palate is expected to roll into 2012 with a preference at full-service eateries for garlic accents and spicy flavors as well as a growing affinity for regional Mexican dishes, Latin American food, and barbecue sauces with a twist.
“As it is with fashion, it is with food: Tastes are always developing and changing,” O’Dowd says, adding that Hurricane is looking to expand its sauce line beyond its current 32 flavors.
Driving the momentum, Chapman says, is a more culinary-educated clientele, one spurred by mass media and younger consumers who show a more risk-taking culinary spirit. She calls it “The Food Network Effect.”
“There’s more information available and more media time devoted to food and flavor than ever before,” Chapman says, adding that increased global travel also helps explain the more sophisticated palate and calls for more complex flavors.
Still, restaurants shouldn’t get too daring. Consumers are likely to remain loyal to the tried and true, particularly as they adopt less risk with their discretionary dollars. Operators who can find the balance between staple menu items while simultaneously staying on top of flavor trends to reinvigorate classic dishes might be best positioned to connect with consumers.
The ability to customize
Chapman says Technomic has witnessed a steady climb in the number of consumers desiring customization at full-service outlets. Whether offering different spreads, condiments, and sauces or allowing customers to mix and match or define preparation style, customization rushes into 2012 demanding operators keep pace.
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Certainly nothing new to the restaurant arena (consider Burger King’s “Have It Your Way” campaign or Subway’s made-to-order sandwiches), the increased restaurant menu flexibility rejects the assembly-line feel and prepackaged perception that one-size-fits-all meals often trigger.
As he has done at Rosti since 2008, Goldfein will continue making customization a part of his restaurant’s work to create loyal customers. All over the Rosti menu, Goldfein notes that customers can select their sauce and request substitutions. He also provides vegetarian, vegan, and gluten-free options.
“If I have the wherewithal to meet a customer’s request, there’s no doubt in my mind I’m doing it,” he says. “The ability to please, especially in this climate, is absolutely critical. I want to offer more things to more people.”
Healthy in name if not numbers
While consumers have long called on restaurants to offer healthier options, the reality persists that restaurant-goers are only slowly changing their habits.
Technomic in 2011 reported a telling find: 47 percent of Americans said they wanted restaurants to offer healthier items, but only 23 percent reported actually ordering them.
“More are interested in ‘health’ terms like ‘natural’ and ‘organic,’” Chapman says. “Even with menu labeling, expect to see this be a slow progression.”
Indeed, a growing number of consumers are interested in food sources and ingredient lists. Into 2012, transparency is more necessity than option.
“Some think this is a fad, but I don’t think so,” Goldfein says of customers’ sourcing questions. “It demands that everyone in the restaurant is knowledgeable and trained to answers questions or, at the minimum, knows where to get the answers.”
In addition, many view healthy in terms of leaner proteins, such as buffalo and white meat turkey, and not simply in terms of fruits and veggies.
“That’s something to keep an eye on,” Schussler says. “The chefs are experimenting because they’re getting a better sense of what consumers want.”
Increased influence of social media
Consumers are expected to continue embracing social media as a platform for sharing their restaurant experiences and attitudes with friends, colleagues, and virtually anyone who will listen. Social networks, such as Facebook and Twitter, as well as online review sites, such as Yelp and Urbanspoon, continue to build a brand’s story and influence consumer choices.
“Consumers are tending to put increased trust in their networks more than traditional marketing—and that’s for the good as much as the bad,” Chapman says.
In addition, diners want an avenue to connect with their favorite restaurants. As operators continue to embrace social media as a cost-effective tool in the marketing arsenal, it’s expected to become even more critical that restaurants are not merely visible, but active participants in the media landscape. After all, that’s what the consumer wants.
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