What is in this article?:
Consumers seek increased value
LSRs enjoyed greater growth than FSRs for decades as they established more locations, often closer and more convenient to consumers; and, at times, in non-traditional food retail locations.
But, FSRs appear to be gaining more traction as consumers look for more value amid the menu of convenience, quality, price entertainment and overall dining experience.
In response, ERS analysts say, “… some fast-food restaurants are now offering more of the variety of items and heightened amenities typically associated with full-service establishments ...” But, they add, “Both FSRs and LSRs are increasing the variety of foods and services available to their customers.”
Aside from a cacophony of new menu items, think about everything from electronic self-order kiosks to table-top television, and the equipment in the kiddy playground.
“Although many factors could be contributing to the evolution of the food service industry, a sustained shift in consumer demand appears to be the primary force,” ERS analysts say. “A change in demand can alter the competitive dynamics of a market. If consumer demand is shifting in favor of the foods and services traditionally offered by FSRs, then FSR companies will be encouraged to operate more outlets offering more variety and dining amenities. Fast-food restaurants (LSRs) might also introduce many of these same foods and services themselves …”
Fulfilling consumer demand has grown more costly and precarious as the nation’s unemployment rate increased and consumer incomes decreased through the Great Recession and the nascent recovery.
On the one hand, the National Restaurant Association (NRA) expects wholesale food costs to continue on an upward trajectory through 2013, putting significant pressure on restaurants’ bottom lines as about one-third of sales in a restaurant goes to food and beverage purchases.
On the other, folks at the NRA point out that there’s a strong correlation between restaurant sales and consumer disposable income.
Then there’s health care and the threat of higher costs with reform.
According to NRA, one-third of a typical restaurant’s sales go toward labor costs, so significant increases in those costs will result in additional cost management measures to preserve the slim pretax profit margins of 3-5% on which most restaurants operate.
“Despite a continued challenging operating environment, the restaurant industry remains a strong driver in the nation’s economy,” says Dawn Sweeney, NRA president and CEO.
According to NRA’s 2013 Restaurant Industry Forecast, total restaurant industry sales are expected to exceed $660 billion in 2013 – that is a 3.8% increase over 2012. It would be the fourth consecutive year of real sales growth for the industry.
“The fact that the restaurant industry will continue to grow in an operating environment that presents substantial challenges is a testament to the essential role that restaurants play in our daily lives,” says Hudson Riehle, NRA senior vice president of research and knowledge. “Restaurants are offering products and services that consumers actively seek out and enjoy.” He adds that even with cash constraints, consumers seek to eat out because doing so has become an important component of their lifestyle.