NRA Forecasts Record Growth in 2014
The restaurant industry is poised for a record high $683.4 billion in sales for 2014, an increase of 3.6 percent over last year (1.2 when adjusted for inflation), projects the National Restaurant Association in its 2014 economic forecast.
If the numbers hold, 2014 will mark the fifth consecutive year in real sales growth for the industry, despite a challenging economic landscape. Industry sales on a net basis for 2014 will be $24 billion dollars over the 2013 level, reports Hudson Riehle, senior vice president of the NRA’s Research & Knowledge Group.
The forecast paints a picture of an industry experiencing record sales and strong job growth, while contending with elevated food prices and shrinking consumer confidence levels and discretionary income.
The industry is responding to these challenges, says Riehle, “feeding consumer appetites with new technology, customer loyalty efforts, and evolving menu options.”
For the 15th consecutive year, the restaurant industry will outpace the nation’s overall employment growth, adding jobs at a 2.8 percent rate in 2014, a full percentage point above the projected 1.8 percent gain in total U.S. employment, according to the NRA.
In 2013, the restaurant industry added 3.3 percent jobs, compared with the total U.S. employment growth rate of 1.6 percent. The business is the nation’s second largest private employer, with nearly one million restaurants employing 13.5 million, or about 10 percent of the total U.S. workforce.
The report shows that modest overall employment growth in the U.S. correlates into lower consumer confidence levels. The end result is that consumers are holding on tighter to their purse strings, says Riehle.
The number of households earning annuall incomes of $70,000 and up are declining, a development that is particularly hurtful to the restaurant industry, as this demographic accounts for 57 percent of industry spending.
From an operator perspective, it is now extremely important to nudge and incentivize consumers to patronize your restaurant, says Roehl.
Despite spending cutbacks, consumers have substantial pent-up demand for restaurant services, with two out of five consumers saying they are not using restaurant as often as they would like. Improving economic conditions and some nudging by restaurateurs can turn that demand into sales.
Table-service restaurants aren’t faring as well as limited service brands, reports the NRA. Full-service operations are projected to increase their combined sales by 2.6 percent, which translates into a gain of less than 1 percent when factoring inflation. Quick-serve businesses are expected to increase sales by 4.4 percent, or 2 percent adjusted for inflation.
The full-service segment is experiencing greater profitably pressure, as the majority of their customers are from higher income households.
Another major challenge is rising wholesale food prices, which continue to eat away at pre-tax profit margins, requiring a vigilante operating cost structure to ensure profitability.
Technology’s role in a restaurant’s profitability continues to increase. The capability now exists for operators to offer additional incentives to get incremental visits from diners. Operations should be using the new technologies available to create more consumer demand, altering menu prices based on time of day, day of the week and even the season, says Riehle.
Consumers are also more engaged with technology, with nearly 20 percent citing technology options are an important factor when choosing a full-service restaurant. In the 18- to 34-year-old demographic, 24 percent consider a restaurant’s technology options when selecting where to go, compared to 11 percent of individuals age 65 and over.
Sixty-seven percent of consumers surveyed used their smartphone or tablet to look up directions. In the 18-to 34-year-old category, that number climbs to 88 percent. Sixty-three percent used a computer to view menus or make a reservation., That number climbs to 82 percent when just considering the 18-to 34-year-old group.
Looking at the labor front, one noticeable trend is the demographic of the workforce. The restaurant industry’s traditional labor pool of 16- to 24-year-olds is shrinking, while the labor pool of 55 and older is skyrocketing. “The United States on average is aging, with implications for the customer base and workforce,” notes Riehle.
By Joann Whitcher