Will Consumers Be Heading to Restaurants Anytime Soon?

Andy Golub co-wrote this article.

ChangeWave’s March survey of U.S. consumers points to a continued tough spending environment, with restaurants remaining one of the weakest spending areas. But in a hopeful sign, the rate of decline has leveled off compared to our previous survey.

During the weeks of Feb 17-23 and Mar 3-10, we surveyed consumers on their dining habits to determine – among other things – whether there are any dining categories and restaurant chains showing signs of improvement.

Continued Hard Times

After a 16-month downward spiral the rate of restaurant spending decline is leveling off. Half of respondents (50%) still say they'll spend less money at restaurants going forward; however, that’s 2-pts better than the February measure.

Just 5% say they’ll be spending more at restaurants – unchanged from our all-time low.

Other key findings:

• One-in-three consumers (33%) say they’ll dine at Less Expensive restaurants going forward compared to just 1% who say they’ll dine at More Expensive ones.

• 34% of respondents expect to dine out Less Frequently over the next 90 days, compared to just 6% who say they’ll dine out More Frequently. We do note, however, that this is a net 6-pt improvement from the last time we asked this question in November 2008.

• Looking at the past 90 days, 44% say they’ve been Eating More Meals at Home, although that’s 4-pts less than previously. Another 34% say they’ve been Using Coupons/ Discounts More Frequently – and that’s a 2-pt increase since November.

Top Reasons for Dining Out Less

For the second consecutive survey, Reduced Income (38%; up 5-pts) has risen as a key concern and is one of the top reasons why consumers expect to dine out less frequently. Job Security Concerns (14%; up 2-pts) has also moved up as a key reason.

Hardest Hit Restaurants

Dining Frequency is still slowing in every restaurant category, but it’s worth noting that our category results aren’t as bad as in our November survey.

Upscale/Fine Dining Restaurants continue to take the biggest hit, with only 3% of respondents saying they’ll dine at them “ More Often” over the next 90 days, while 37% say “Less Often” (Net Difference Score = -34). Nonetheless, these results are a 6-pt improvement over the previous survey.

High End Casual Restaurants are also still suffering (-29), but have managed to register a 4-pt improvement. Quick Casual/ Family Restaurants (-2) and Fast Food Restaurants (-2) have both posted a 1-pt improvement.

Individual Restaurant Chains

We also asked respondents which individual restaurant chains they’ll be spending more money and less money at over the next 90 days. We then compared the current results with the findings from our previous survey.

While it’s tough to show improvement in a weak market, we’ve identified a handful of chains that have experienced a slight uptick in the percentage of consumers who say they’ll spend more vs. less money there over the next 90 days.

Best Positioned. In the Moderate Casual Dining category, Olive Garden (DRI) (+2) shows some signs of improvement going forward.

Among Quick Casual Restaurants, Denny’s (DENN) (+2) shows an uptick, while among Fast Food Restaurants Subway (+2) shows slight signs of improvement.

Worst Positioned. On the down side, California Pizza Kitchen (CPKI) (-3) and Taco Bell (YUM) (-3) are registering the two biggest declines going forward of any of the chains looked at in the survey.

All in all, we are in a very challenging spending environment, but while restaurant spending remains one of the weakest of all sectors, the good news is the rate of decline is leveling off from record low levels.

On a note of optimism about the future, 38% of respondents say they’ll go back to spending more each month on restaurants and eating out when the economy improves, compared to just 10% who say they’ll continue to spend less each month.

Comments

[stronzo:]

Dominos Pizza Europe - House of Cards ?
Openings and sales are progressing well but behind the fanfare things are not as rosy as they seem at Dominos Pizza Europe ... the franchisees can't pay their bills!
The annual report 2007 shows trade receivables at the consolidated level (almost exclusively food and royalties from franchisees) of A$27 million, or about 49 days on Revenues of A$200m (see attached). This does not seem to concern the auditors who attest (note 7) that "the average credit period on sales of goods is 30 days". The same note reveals however that, since the acquisition of the Europe master franchise, consolidated trade receivables has shot up from $5.4m to $27m. In comparing the $27m consolidated trade receivables figure to the company one (A$7.4m) we must indeed suppose that this difference is driven by the Europe acquisition.
Analysis of the French statutory accounts confirms this. Trade receivables in France as at 30/6/2007 stand at 9.498 million (A$15.077 million) or 127 days sales (versus €6.747 million 1 A$10.710 million or 116 days at the end of 2005). Now, a large part of the 2005 receivables were either written off or converted into debt, hence the €3325k (A$5278k) "other receivables" that we see in 2007. If we therefore look at combined trade receivables and other receivables for France of €12823k (A$20335k) we arrive 171 days of franchisee debts ... just under 6 months! Another way of looking at this is to say that the French franchisees owe t equivalent of 3 times the 2007 group consolidated operating cash flow of A$ 6.976 million!
Now, not all Dominos Franchisees in France are unable to pay their debts. A number have been around for years and are doing fine. Fine, that is, until they have to move to Dominos new contractual terms of 6.5% royalty in addition to paying 5.5% national marketing contribution to pay for the television campaign which has unfortunately not yielded sufficient sales uplift to pay for the investment.
The bigger problem is the franchisees who are opening new units. In addition to paying the 12% of sales on royalty and marketing, the sales levels of openings are simply not high enough to pay the food (between 25% and 30% of sales for the franchisee, depending on the level of price discounting). It is these new franchisees who are causing the debts to accumulate ... from A$ 11.8 million at end 2005 to A$20.3m as at end June 2007.
French law requires that payments to food suppliers be made within 45 days, which is clearly not the case for many of the French franchisees today.
In addition, the French authorities generally take a dim view of big corporations (particularly foreign ones) using their financial muscle to attack their small independent entrepreneurs. One can imagine the conclusions they will come to when they look at the heavy price discounting behind Dominos highly publicised "High Volume Mentality" coupled with the rapidly accumulating Franchisee debts.

Apr 05 10:45 AM

[hotsauceman:]

I think the "leveling" is not statistically significant and not enough to signal any turnaround. With unemployment figures up the near future is anything but encouraging.


On Apr 05 10:45 AM stronzo wrote:

> Dominos Pizza Europe - House of Cards ?
> Openings and sales are progressing well but behind the fanfare things
> are not as rosy as they seem at Dominos Pizza Europe ... the franchisees
> can't pay their bills!
> The annual report 2007 shows trade receivables at the consolidated
> level (almost exclusively food and royalties from franchisees) of
> A$27 million, or about 49 days on Revenues of A$200m (see attached).
> This does not seem to concern the auditors who attest (note 7) that
> "the average credit period on sales of goods is 30 days". The same
> note reveals however that, since the acquisition of the Europe master
> franchise, consolidated trade receivables has shot up from $5.4m
> to $27m. In comparing the $27m consolidated trade receivables figure
> to the company one (A$7.4m) we must indeed suppose that this difference
> is driven by the Europe acquisition.
> Analysis of the French statutory accounts confirms this. Trade receivables
> in France as at 30/6/2007 stand at 9.498 million (A$15.077 million)
> or 127 days sales (versus €6.747 million 1 A$10.710 million or 116
> days at the end of 2005). Now, a large part of the 2005 receivables
> were either written off or converted into debt, hence the €3325k
> (A$5278k) "other receivables" that we see in 2007. If we therefore
> look at combined trade receivables and other receivables for France
> of €12823k (A$20335k) we arrive 171 days of franchisee debts ...
> just under 6 months! Another way of looking at this is to say that
> the French franchisees owe t equivalent of 3 times the 2007 group
> consolidated operating cash flow of A$ 6.976 million!
> Now, not all Dominos Franchisees in France are unable to pay their
> debts. A number have been around for years and are doing fine. Fine,
> that is, until they have to move to Dominos new contractual terms
> of 6.5% royalty in addition to paying 5.5% national marketing contribution
> to pay for the television campaign which has unfortunately not yielded
> sufficient sales uplift to pay for the investment.
> The bigger problem is the franchisees who are opening new units.
> In addition to paying the 12% of sales on royalty and marketing,
> the sales levels of openings are simply not high enough to pay the
> food (between 25% and 30% of sales for the franchisee, depending
> on the level of price discounting). It is these new franchisees who
> are causing the debts to accumulate ... from A$ 11.8 million at end
> 2005 to A$20.3m as at end June 2007.
> French law requires that payments to food suppliers be made within
> 45 days, which is clearly not the case for many of the French franchisees
> today.
> In addition, the French authorities generally take a dim view of
> big corporations (particularly foreign ones) using their financial
> muscle to attack their small independent entrepreneurs. One can imagine
> the conclusions they will come to when they look at the heavy price
> discounting behind Dominos highly publicised "High Volume Mentality"
> coupled with the rapidly accumulating Franchisee debts.

Apr 06 02:11 PM