Americans Are Dining Out Less as Economy Cools

June 27, 2016, 2:36 PM UTC
Service Sector Index, Including Restaurant Industry, Posts Large Declines
SAN FRANCISCO - DECEMBER 03: Waiter Alexander Alioto prepares to serve lunch to customers at Alioto's Seafood Restaurant December 3, 2008 in San Francisco, California. A report by The Institute for Supply Management says that its services sector index dropped in November to 37.3, down from 44.4 in October as the service industry struggles through the weak economy. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan Getty Images

The cooling economy is resulting in chilly sales trends at U.S. restaurants, a problematic trend for an industry that is also grappling with higher wage costs.

The Wall Street Journal got an early peak at some figures from research firm The NPD Group and they don’t paint a pretty picture. Visits to fast-food restaurants – which comprise of 80% of the industry – didn’t grow in March, April or May. And problematically, visits to fast-casual restaurants, a concept popularized by Chipotle (CMG) and Panera (PNRA), posted a monthly traffic drop in May. That’s the first decline for that segment since 2004.

Fast-casual operators had been a bright spot in the broader restaurant landscape, as they successfully were able to convince consumers that the quality of their food was worth a few extra dollars at the register. Like fast-food operators, Chipotle and its peers serve quick meals, but they generally don’t offer table service and don’t rely on drive-thru traffic for sales.

WSJ places much of the blame on the economy, citing slowing job growth and gas prices that are ticking higher. The International Monetary Fund recently trimmed its growth expectations for the U.S. this year, so clearly the economy isn’t performing as strongly as some had hoped—and that’s before Friday’s Brexit vote roiled financial markets and raised additional concerns about the outlook for global growth.

One element of the competitive landscape that WSJ didn’t address too much: the rising threat from grocery stores. NPD Group earlier this month called out strength from that channel – saying in-store dining and take-out of prepared foods from grocers has grown nearly 30% since 2008. That shift in spending accounted for over 2.4 billion foodservice visits and $10 billion of consumer spending last year.

Dubbed by some as the rise of the “Grocerant,” it is a millennial-fueled shift in spending. While Millennials are going to grocery stores less often than other generations, the take-out meals that chains like Whole Foods (WFM), Kroger (KR) and others offer are gaining traction with that age group.

“Millennials’ interest in the benefits and experience supermarket foodservice offers will continue to be strong over the next several years,” says David Portalatin, vice president, industry analysis at NPD Group. “This forecast bodes well for food manufacturers and retailers who have their fingers on the pulse of what drives this generational group. Give the Millennials what they want — fresh, healthier fare and a decent price — and they will come.”

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Great ResignationInflationSupply ChainsLeadership