While the U.S. economic recovery remains fragile, there is much for the restaurant industry to celebrate, according to market research firm Packaged Facts. "The Foodservice Landscape in the U.S.," its outlook report for the restaurant industry, projects that sales will grow 4.2 percent to $487 million in 2012, on the heels of 6.1 percent market growth in 2011.

Despite forecasting moderate restaurant industry growth in 2012 and 2013, Packaged Facts warns that operators must continue to experiment aggressively with menu pricing strategies and focus on courting minority racial/ethnic groups-and prepare for profit margin compression.  

The onus of food commodity price increases is sizeable enough to threaten the restaurant recovery, unless restaurant operators are prepared to bite the bullet on profit margins.

Continuing a trend that gathered momentum in 2011, many operators will need to maintain menu prices at the expense of higher margins or risk losing customers.

Moreover, according to David Sprinkle, publisher of Packaged Facts, "demographic-specific employment trends will continue to have disproportionate consequences and create distinct opportunity micro-climates by restaurant industry segment and geographic zone."

Although the housing market remains in a trough, consumer spending is rising modestly. Household debt ratios have declined, which bodes well for the discretionary income growth needed to increase guest traffic and perk up guest check averages.

Food and accommodations spending is outpacing other personal consumption expenditures.

Moreover, restaurant companies will increasingly leverage the technological and marketing power inherent in the smartphone. Location-based services such as Foursquare are a relatively new aspect of social media, but Packaged Facts expects quick uptake to continue among consumers and foodservice operators.

By segment, full-service restaurants posted the highest growth rate, at 8.1 percent. Fine dining had a moderate rebound in 2011, though the hill back to 2007 spending levels remains very steep.

Growth in the restaurant breakfast (5 percent) and snack (8 percent) customers has outpaced population growth since 2008, and the overall percentage of consumers using restaurants for these occasions has increased–although the reverse trend holds among Generation X.  

All-natural and organic are not only the most prevalent health-related claims on restaurant menus, but their menu presence also grew during 2007-2011. In 2011 menus, 15.7 percent of restaurants featured a natural claim and 13.5 percent featured an organic claim, with the tendency to market these claims rising with restaurant price points.

Consumers age 65 or older are spending significantly more (13 percent) on limited-service restaurants than they did in 2007. Millennial generation consumers, at the other end of the age spectrum, are spending significantly more on limited-service restaurants as well as full-service restaurants.

By household income level, those with an income of $100K or more generate more than one-third of spending on meals at restaurants, even though they comprise only 17 percent of all households.  

The number of higher-income households and of lower-income households has grown since 2007, while the number of middle-income households declined. Because restaurant spending correlates to household income, the crimping of the middle class is a major hurdle for the industry, as it is of course for the national economy overall.  

Packaged Facts estimates that the number of restaurant visits grew by 3 percent from 2008 to 2011, based entirely on population growth, not usage increase. Even then, restaurant operators across restaurant segments contend with the increased numbers of lower-spending guests and decreased numbers of higher-income guests, which has translated to higher volume but lower guest check averages.

Food commodity price increases could set the restaurant industry back, according to "Foodservice Landscape in the U.S.," threatening the modest sales recovery seen in 2010 and 2011.

Such price increases have the potential to erode the pricing gains restaurants have made relative to grocery prices. This creates increased incentive for consumers to eat at home, and throws menu strategies into disarray. Menu strategies rely on hitting the appropriate pricing and food margin mix.  

Facing reduced consumer discretionary income and higher rates of unemployment, some of the industry's major chains are pursuing sales growth by creating sister brands or new brands that are cut from fast casual cloth. Enticements include expansion opportunities, reduced capital investment, and new customer bases.

Most importantly, further employment gains are needed to spur overall restaurant industry growth. Consumers age 18-24, those without high school diplomas, and African-American consumers in particular remain saddled with unemployment rates much higher than the average.

Consumer Trends, Finance, Growth, News, Restaurant Operations