Consumers Show Little Appetite for Restaurants

Jim Woods co-wrote this article.

It’s been a rough ride lately for the U.S. economy, and nowhere has this been more evident than at your favorite restaurant.

According to ChangeWave’s December consumer survey, it looks like more belt tightening went on last month when it comes to dining out. The survey of 1,308 consumers focused on dining habits and found a further weakening in restaurant spending.

More than half of respondents (51%) said they'll be spending less money at restaurants going forward – an all-time high in a ChangeWave survey. Only 7% said they’ll be spending more, unchanged from November.

The year-over-year decline (Dec 2008 vs. Nov 2007) fell to an unprecedented 41-pts.

Moreover, among those dining out less often, nearly half (47%) say it's because they're “Saving More Money” – a full 25-pts higher than our September survey. At the same time, there has been a 10-pt increase in the percentage of consumers who say they're Eating More Meals at Home (48%).

But which types of restaurant chains are getting hardest hit? And are there any categories showing signs of improvement?

The Consumer Dining Revolution

Not surprisingly, for the fourth-consecutive survey Upscale/ Fine Dining Restaurants have taken the biggest hit in terms of dining frequency. Only 2% of respondents say they’ll dine at them More Often over the next 90 days, while 42% say Less Often (Net Difference Score = -40-pts).

High End Casual Restaurants are also taking a big hit (-33).

Fast Food Restaurants (-3), on the other hand, have actually managed to improve ever so slightly since our last survey in September (when the category registered a -4) – a notable achievement these days.

Winning and Losing Restaurant Chains

We also asked respondents which individual chains they’ll be spending more and less money at over the next 90 days – and compared the current results with the findings from our previous survey. A total of 124 restaurant chains were looked at in the survey.

Best Positioned: Among Fast Food Restaurants, McDonalds (MCD; Change in Net Difference Score = +3) is showing clear signs of momentum. And in the Moderate Casual Category, the percentage of consumers saying they’ll spend money at California Pizza Kitchen (CPKI; +3) over the next 90 days has experienced a surprising move upward.

Worst Positioned: On the down side, Outback Steakhouse (-5) showed the biggest decline going forward of any chain in the survey, followed by P.F Chang's (PFCB; -4) and Red Lobster (DRI; -4).

These restaurant spending trends reflect the current recessionary environment. But historically, restaurant spending is also one of the first areas to improve when the economy begins to recover.

We’ll be keeping a close eye on restaurant spending this month. In fact, next week you’ll be receiving our January consumer spending results, including an update on overall restaurant spending going forward.

Comments

[jepittman:]

Restaurants will not escape the slowdown in the economy. However people must eat somewhere and when the economy stabilizes and again begins to grow one of the very first things consumers will do is go out to eat. Restaurants are an early cycle sector. The recession is over one year old. It will not require evidence of a recovery for restaurant stocks to begin to appreciate. All that is necessary is conclusive evidence that an economic trough is at hand.

One good way to participate is Sysco, the nationwide premier restaurant supplier. Think of your favorite private restaurant and chances are they have an account with Sysco. As baby boomers age, going out to eat with family will not be sacrificed. With Sysco you do not have to guess which restaurant chain has the best model. Own the supplier and you participate. Sysco consistently earns 30% ROE and yields 4% at recent prices. Honest, shareholder friendly management and NO shenenigans.

Disclosure: Owner of Sysco shares since 1995

Jan 14 09:33 PM

[captainccs:]

Interesting! Hot dog stands are doing great business in Caracas, Venezuela, these days, it's all many people can afford.


On Jan 16 03:18 PM dividendmachine wrote:

> Those who know the history of McDonalds know that the McDonalds brthers
> started their retaurants because during the depression only the hot
> dog vendors did any business. McDoanlds is a great real estate play
> and reading John Loves Behind the Arches explains their business
> model perfectly

Jan 23 06:45 PM