NPD: Industry sales not expected to rebound

Hurt by rising unemployment rates and a drop in food prices at supermarkets, which can encourage consumers to eat at home, restaurant industry sales and traffic fell in every segment this summer, according to a new report from The NPD Group’s CREST service.

With economic indicators not looking to rebound soon, NPD analysts say the deep decline in restaurant spending may continue through much of next year.

“Unfortunately, the weakness foodservice is experiencing is not expected to be short-lived,” said NPD analyst Bonnie Riggs. “Foodservice traffic will remain weak throughout the third and fourth quarters of 2009, and we don’t expect traffic growth until the second half of 2010.”

CREST research showed that guest traffic across the restaurant industry fell 3.6 percent over the summer, comprising June, July and August, compared with the same three months a year earlier. It marked the fourth straight quarter of declines in total industry traffic. Total consumer spending at restaurants fell 1.6 percent in that time.

“There are a variety of factors contributing to the declines in restaurant visits and spending,” said Harry Balzer, vice president and chief industry analyst at NPD, “including high unemployment [and] the difference between food prices at home and food prices away from home. Food prices at supermarkets are less than a year ago, while restaurant prices are higher than a year ago.”

Traffic fell at every restaurant industry segment and for every daypart, CREST’s data found. Visits fell 3 percent at quick-service restaurants, 5 percent at midscale eateries, which are mainly family-dining operations, and 4 percent at casual-dining locations. Traffic during the summer contracted most during the dinner daypart, down 6 percent, followed by declines of 4 percent during lunch and 2 percent during the morning-meal and evening-snack dayparts.

Deal-related restaurant visits were the only occasions that showed any growth in the summer quarter, according to NPD. Those visits rose 2 percent. By contrast, non-deal-related visits to restaurants decreased 5 percent.

NPD also found that most of the discounting took the form of coupons, especially Internet coupons, as well as “buy some, get some” offers and traditional discounts. More than half the deals came from casual-dining chains, the report found.

Indeed, many restaurants have tried to coax consumers into visiting restaurants with value-focused advertising and discounts or deals. Kids-eat-free offers were especially popular as a way to lure families into eating out, especially at dinner, as evidenced by such deals from IHOP and Tropical Smoothie Café or variants like Boston Market’s “two kids eat free” deal and Quaker Steak & Lube’s “parents eat free” promotion.

Value offerings are everywhere, as casual-dining chains like Chili’s and Applebee’s promote combination deals around the $20 price point and quick-service brands either bolster value menus or roll out new products around the $5 benchmark set by Subway’s ubiquitous foot-longs.