According to the December survey, consumers say they expect to spend 5% less per meal at restaurants this year--an average of $12.90 per meal versus the $13.60 spent per meal over the last 12 months. In addition, 11% say they expect to spend [image-nocss] just $5 or less per meal in 2011, up from 6% last year, while 60% plan to utilize coupons and other promotions to lower check prices.
But diners are eating out more: 57% of consumers surveyed said they dined out at least once a week in the past 12 months, an eight percentage-point increase versus the response to the same question in AlixPartners' March 2010 survey. In the coming 12 months, 11% of consumers plan to increase their dining-out frequency, albeit spending less per meal.
"From all indications, 'the year of the meal deal' looks like it may be turning into 'the era of the meal deal,'" said Adam Werner, a managing director at AlixPartners and head of the firm's North American Restaurant & Foodservice Practice. "The good news is, diners are coming back into restaurants, but they remain cautious and very price-sensitive. As a result, the rebound in the industry could remain sluggish."
The consumer survey showed that promotions remain the most effective way to draw in new and existing customers. Despite the strong and growing importance of food quality among diners, AlixPartners' survey indicated that 43% are willing to trade down to less-expensive restaurants in order to save money.
Of consumers planning on dining out less in the next 12 months, most (54%) cite the need to save money as the primary reason for plans to cut back; however, the desire to eat healthier is a close second at 50% (also an increase of eight percentage points over the AlixPartners survey of last March).
"This focus on saving money, coupled with the desire to eat healthier will put pressure on companies to take a hard look at their menus and the price-value equation they're presenting to the increasingly frugal and health-conscious consumer," said Werner.
Marketing channels and tactics are also a concern for restaurant companies moving forward. Despite movement over the past couple of years toward online marketing, only 20% of diners surveyed indicated that digital media influenced their dining-out decisions. The survey asked questions about online reservation sites, discount-aggregation sites, sponsored e-mails, social media sites and company websites.
"Clearly, the back-to-basics ethos that we're seeing in the economy at large seems to extend to what we eat and who and what influences our dining-out or dining-in decisions," said Kurt Schnaubelt, a director in the Restaurant & Foodservice Practice at AlixPartners.
The second part of the AlixPartners Restaurant & Foodservice Industry Review, a comprehensive industry study examining its financial stability across all sectors--quick service, fast casual, casual and fine dining--found that the pace of recovery in the industry is indeed spotty and that growth strategies will be the name of the game in 2011, including an uptick in mergers and acquisitions.
The study found that quick-service restaurants, in particular, continue to struggle due to competition from convenience stores and a core customer base that is more severely impacted and influenced by unemployment levels and the ongoing ups-and-downs of the economy. Fast Casual, on the other hand, experienced solid improvement in same-store sales over 2009. C-stores have seen significant sales growth in the past two years tied to tradedowns, food quality upgrades and their increased marketing of food products.
The outlook for the casual dining sector seems positive based on revenue--85% of casual restaurants studied experienced higher growth in 2010 vs. 2009--but overcapacity continues to plague the sector despite many chains' ongoing efforts to reduce their footprint.
Among the four primary industry sectors, fine dining experienced the strongest turnaround over the past year, due largely to increased business-travel spending.
Despite slow but positive movement toward recovery, 2011 will present significant challenges for the restaurant industry across all sectors, said the study. Most importantly, rising commodity prices--including gasoline, logistics (warehousing, transportation) and food products (in particular "center-of-the-plate" items)--will force restaurants to choose between passing those costs on to today's hyper-price-sensitive consumers or absorbing the costs and possibly suffering further setbacks on the road to recovery.
"Some 37% of companies studied face liquidity risk and, as such, a primary focus in the industry is paying down debt and improving balance sheet health," said Eric Dzwonczyk, director in the Restaurant & Foodservice Practice at AlixPartners. "However, rising commodity prices and consumers' unwillingness to see price increases pose a real threat to companies facing financial distress, as well as those taking steps toward improving financial health. Companies have two options, either absorb commodity price hikes or pass them onto consumers, and neither is preferable in the still-recovering U.S. economic environment."
Also, according to the study, while cost-improvement measures remain key as restaurants across all sectors address the challenges of 2011, growth initiatives such menu optimization and marketing effectiveness, as well as international outreach, including to fast-growing markets like China, will be the critical differentiators separating the winners and losers moving forward.
The restaurant industry, led by private-equity investment, saw increased M&A activity in 2010, which outpaced 2009 in both transaction value (approximately $8 billion) and number of deals (approximately 300 worldwide). AlixPartners expects the restaurant M&A market to remain active through 2011 as companies scout for growth opportunities both domestically and abroad to increase market-share.
"Moving forward into 2011, winning companies will be those that simultaneously deliver value 'at the table,' operational efficiencies 'in the kitchen' and much-needed innovation and growth 'in the corporate engine room,'" concluded Werner.
The AlixPartners Restaurant & Foodservice Industry Review included an online consumer poll with 1,000 U.S. consumers conducted in December 2010. The questions focused on a number of areas, including planned frequency of dining occasions, expected spending on meals outside the home, preferred restaurant types and key criteria for restaurant selection. The data are weighted to reflect the demographic composition of the adult population.
AlixPartners LLP, New York, is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial-advisory services and information-management services.
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