Improving U.S. Economy Should Drive Moderate Foodservice Growth, Says Technomic

The domestic economy is looking better than it has since the Great Recession began in 2008, according to economist Arjun Chakravarti, but there remain significant risk factors. And the gradually improving economic situation of many Americans should lead to the continuation of moderate foodservice sales growth over the next 18 months, said Technomic Pres. Ron Paul.

Both men spoke during the Chicago-based research firm’s annual Restaurants 2013Trends & Directions Conference, held June 20 in Rosemont, Ill. In addition to the economic and foodservice forecasts, the conference covered a wide range of topics including consumer trends, menu, culinary and beverage trends, chain growth concepts, pricing strategies and the impact and implications of new technologies. The conference attracted several hundred chain restaurant operators and suppliers.

Chakravarti, assistant professor of management and marketing at the IIT Stuart School of Business in Chicago and consulting economist for Technomic, said moderate but consistent jobs growth, rising home and equity prices and improved balance sheets for many consumers are helping the U.S. economy very gradually recover from the Great Recession. While the end of the payroll tax holiday hurt lower income Americans and the sequestration affecting the federal budget is gradually having a negative impact on the economy, many Americans feel better about their personal economic situations. Consumer confidence numbers reflect the improved mood, though they remain well below historic norms.

But that’s not necessarily translating into increased consumer spending. Average wage growth remains flat and some consumers are still very conservative about their budgets. Chakravarti noted there are “big differences” in consumer behavior based on income levels, age and educational attainment. The financially better-off are doing well with housing and stock values rising. Those in the middle of the income ladder have seen their wages constrained, a trend that sequestration will aggravate since many federal employees face furloughs, while gasoline and food prices ebb and flow. For Americans in their 20s, the recession has led to underemployment at the same time their debt loads for student loans have soared. For the poor and undereducated, the U.S. economy is still in full recession.

The main risks for the U.S. economy are the creeping impact of sequestration and the uncertainties surrounding implementation of the Affordable Care Act. Chakravarti, commenting on the developing impact of sequestration, said “The big hits haven’t come yet,” though he noted low-income households, rural regions and regions highly dependent on the military are already affected. With the changes in healthcare, there are “huge uncertainties with potentially large impacts on consumer spending,” he said. “Most companies are uncertain of or cannot decipher their pending legal obligations.”

Still, Charavarti said despite these challenges, the U.S economy is on track for growth of real gross domestic product in the 2% to 3% range this year.

Paul provided an overview of Technomic’s current forecasts for foodservice sales growth this year and next, which were revised and released in May. He noted consumers’ spending caution, but their improved outlooks. The restaurant industry had its best year since 2007 last year, Paul said, growing 5.2% in current dollars, up from 4% in 2011. But chain same-store sales have slowed in recent quarters as have overall eating & drinking place sales, so the research firm expects restaurant industry sales growth to slow to 3.8% and manage 4.1% growth in 2014. With 3% menu price inflation expected both years, real growth is pegged at 0.8% for ’13 and 1% next year.

With only moderate growth in sight, Paul said “Restaurants are in a take-share market.” He noted the highly unusual situation in the current market in which independent restaurants are growing faster than chains overall. And fast-casual concepts continue to be “a bright point in the restaurant industry,” taking share from both quick-service and full-service segments. Fast-casual’s share of sales among the Top 100 chain concepts grew from 2.7% in 2002 to 8.1% last year, Paul reported.

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