Restaurant Chains Face Uncertainty in 2010
In a still-bleak economy, industry observers predict restaurant chain discounts will continue to rise while alcohol sales tumble.
By David Farkas, Senior Editor -- Chain Leader, 11/4/2009 9:06:00 AM
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Technomic Inc. predicts overall sales of spirits to fall 2.1 percent in 2010. Beer will suffer the least, with sales dropping 1.8 percent. |
Restaurant chain experts and operators are currently dusting off their crystal balls and offering a glimpse into the future-at least through next year. To give you a jump on preparation for what appears to be another challenging year, we've rounded up a few of their predictions.
To be sure, things won't be pretty in the first few months of the new year. "Just 25 percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 32 percent who reported similarly last month," according to the National Restaurant Association's "Restaurant Performance Index," a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry. "In comparison, 32 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, up slightly from 30 percent who reported similarly last month."
Booze Bottoms
Sales volumes will shrink in part because customers will be ordering fewer bar beverages. Chicago-based foodservice-research firm Technomic Inc. is predicting that sales of beer, wine and spirits in casual-dining eateries will tumble nearly 7 percent and more than 10 percent in fine-dining restaurants. Wine will take the biggest overall hit, slipping 6.8 percent.
"Our outlook for alcohol sales is based upon continued weakness in restaurant traffic and further consumer frugality," noted David Henkes, director of the firm's on-premise practice, in a prepared statement. "We don't think we'll begin to see real growth in consumer spending on alcohol again until 2011."
Not All Bad News
Morgan Keegan restaurant analyst Bob Derrington is more optimistic, predicting an overall sales turnaround, maybe, in the second half of next year.
| Expectations 2010 |
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Several recession-sparked trends are likely to affect restaurant chains in 2010. * Construction of new restaurants will remain limited. * Deal-related visits will continue to grow. * On-premise alcohol sales will fall 2.5 percent. * Fewer than four of 10 operators plan to make capital expenditures in the next six months. * Corporate travel and spending will remain weak, a bane to fine-dining chains. * Family restaurants will gain market share. * Competition from grocery stores will heat up. * Industry leaders like Panera Bread and Chipotle will not be affected much by the discounting from competitors. Sources: Chain Leader; Jefferies & Company; Morgan Keegan; National Restaurant Association; Technomic Inc.; NPD Group; Piper Jaffray; American Express "Market Brief" |
"Given continued high unemployment, consumer confidence vacillating, and other economic indicators not pointing to a rebound any time soon, we believe negative (at least modestly negative) [same-store sales] are likely to persist for at least the first half of 2010," he explained in a recent "Industry Note."
Some operators see relief, according to a survey of 50 restaurant chains by a supply chain software and systems provider. It revealed "wary optimism" about supply-chain budgets, a rough inventory barometer. Only 9 percent of restaurant executives said they expect their supply chain budgets to shrink in 2010, while almost 60 percent planned to increase them.
Risky Business
Meanwhile, expect to continue to discount menu items into 2010. Deal-related customer visits were up 2 percent through the third quarter of this year, reports NPD Group, and given the bleak outlook for the remainder of this year and at least half of next, fast-food chains are almost certain to do whatever it takes to drive customers into their units.
Bonnie Riggs, restaurant industry analyst at NPD, lamented: "Unfortunately, the weakness foodservice is experiencing is not expected to be short-lived."
