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Restaurant Industry
2008 and Beyond
Rhode Island Hospitality & Tourism Association
Economic Outlook Breakfast
Providence, RI
October 21, 2008
Hudson Riehle
Senior Vice President Research and Information Services
National Restaurant Association
Agenda
•
•
•
•
•
•
Overview
Economic Backdrop
Industry Segments
What’s Hot
Workforce
Wrap-Up
DEFINITION:
“Restaurant
Industry”
All meals/snacks prepared away
from home, including all takeout
meals and beverages
Restaurant Industry
Commercial
Restaurant
Services
Non-Commercial
Restaurant
Services
Military
Restaurant
Services
Overview
Annual Sales:
$558 billion
Employees:
13.1 million
Locations:
945,000
38 Years of Restaurant-Industry Sales
1971-2008
Source: National Restaurant Association
2008 Restaurant Industry
Sales Gain:
$24 billion
Restaurant Industry’s Share of the Food Dollar
1955: 25%
Source: National Restaurant Association
Present: 48.0%
The Industry Mosaic
•
•
•
•
•
•
Fullservice
Quickservice
Cafeterias and buffets
Caterers
Snack and nonalcoholic
beverage bars
Managed services/
contractors at
• Industrial plants
• Hospital/nursing homes
• Schools and universities
• Airlines
• Recreation and sports centers
•
•
Lodging places
Retail hosts
• Book stores
• Service stations
• Convenience stores
•
•
Self-operated restaurant
services
Military restaurant services
Economic
Backdrop
Economy Expected to Post Modest Growth into 2009
Real Growth in U.S. Gross Domestic Product
4%
3.7%
3.6%
Projected
2.9%
3%
2.8%
2.5%
2.0%
2%
1.6%
1.6%
1.2%
1%
0.8%
0%
2000
2001
2002
2003
2004
2005
Source: Bureau of Economic Analysis, National Restaurant Association
2006
2007
2008
2009
Disposable Income Growth Projected to Slow
Real Growth in Disposable Personal Income
5%
4.8%
Projected
4%
3.6%
3.5%
3.1%
2.8%
3%
2.2%
1.9%
2%
1.6%
1.4%
1.0%
1%
0%
2000
2001
2002
2003
2004
2005
Source: Bureau of Economic Analysis, National Restaurant Association
2006
2007
2008
2009
National Job Losses Expected to Continue in 2009
U.S. Total Employment Growth
3%
Projected
2.2%
2%
1.7%
1.8%
1.1%
1.1%
1%
0.0%
0.0%
0%
-0.3%
-0.5%
-1%
-1.1%
-2%
2000
2001
2002
2003
2004
2005
Source: Bureau of Economic Analysis, National Restaurant Association
2006
2007
2008
2009
National Economy Posting Job Losses
U.S. economy shed 760,000 jobs in the last nine months
U.S. Total Job Growth
200,000
140,000
150,000
100,000
60,000
50,000
41,000
0
-50,000
-67,000
-100,000
-76,000 -83,000 -88,000
-47,000
-67,000 -73,000
-100,000
-150,000
-159,000
-200,000
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
Source: Bureau of Labor Statistics; figures are seasonally-adjusted
Industry Job Growth Falters
Eating and drinking places lost jobs in two of the last three months
Eating and Drinking Place Job Growth
40,000
33,300
30,000
20,000
15,000
12,600
14,400
13,200
10,100
10,000
7,200
6,500
1,800
1,100
0
-4,200
-4,800
-10,000
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
Source: Bureau of Labor Statistics; figures are seasonally-adjusted
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Consumer Confidence Remains at a 15-Year Low
U.S. Consumer Confidence Index
160
140
120
100
80
60
40
Jan-92
Jan-94
Jan-96
Source: The Conference Board
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Consumer Expectations Lowest Since 1991
Present Situation and Expectations Indices
200
180
Present Situation Component
160
140
120
100
80
60
40
Expectations Component
20
0
Jan-92
Jan-94
Jan-96
Source: The Conference Board
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Regional Consumer Confidence
September 2008
77.2
59.8
45.0
39.6
61.7
50.0
63.7
88.5
Source: The Conference Board
79.9
Home Equity Loans
Total amount outstanding at the end of each year
$1,200
$1,129
$1,066
$1,000
$915
$776
Billions
$800
$593
$600
$501
$400
$215 $222 $217 $210 $222 $237
$407
$310 $334
$263 $297
$439
$200
$0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Federal Reserve Bank
Home Equity Cashed Out Through Refinancing Each Quarter
Includes refinancing of prime, first-lien conventional mortgages
$90
$80
$70
Billions
$60
$50
$40
$30
$20
$10
$0
00:Q1
01:Q1
Source: Freddie Mac
02:Q1
03:Q1
04:Q1
05:Q1
06:Q1
07:Q1
08:Q1
Gas Prices Fell From Record High of $4.11
Weekly average for a gallon of regular gasoline, including taxes
$4.50
$4.00
Price per gallon
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
Jan-99
Jan-00 Jan-01
Jan-02
Source: Energy Information Administration
Jan-03
Jan-04 Jan-05
Jan-06
Jan-07
Jan-08
Regional Average on October 13th
Weekly average for regular gasoline, including taxes
$3.27
$2.99
$3.10
$3.42
$3.19
$3.29
$2.99
Source: Energy Information Administration
Wholesale Food Prices on Pace for Strongest Gain in 29 Years
2007 was strongest gain in 27 years
10%
8.8%
7.6%
8%
5.5%
5.6%
6%
4%
3.2%
1.8%
2%
0.6%
0%
-0.3%
0.7%
-0.2%
-2%
-1.2%
-4%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008*
*Year-to-date growth through September
Source: Bureau of Labor Statistics, National Restaurant Association
Individual Commodities Posting Stronger Gains
Year-to-date Growth Through September 2008
Milled Rice
Flour
Fats and Oils
Eggs
Cheese
Milk
Source: Bureau of Labor Statistics, National Restaurant Association
63%
55
55
34
14
9
Grocery Store Price Growth Outpacing Menu Prices
Menu prices on pace for strongest growth since a 4.7% gain in 1990
7%
6.2%
6%
5%
4.2%
3.8%
3.6%
4%
3.0%
3%
2%
4.3%
2.5%
2.1% 2.2%
3.1%
3.1%
1.9%
1.7%
1.3%
1%
0%
2002
2003
2004
2005
Menu Prices
2006
2007
2008*
Grocery Store Prices
*Year-to-date growth through September
Source: Bureau of Labor Statistics, National Restaurant Association
Corn-based Ethanol Requirements Under RFS
Billions of Gallons
16
14
14
13
14
15
13
Billions of Gallons
12
12
10
11
9
8
6
4
2
0
2008
2009
2010
2011
2012
2013
2014
2015
Share of Corn Diverted to Ethanol Production
% of total
Share of Corn Diverted to Ethanol
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
U.S. Corn Use – Projected to 2015
Billions of Bushels
16
14
12
Ethanol
10
Food, seed & industrial less ethanol
8
Exports
6
4
Feed & Residual
2
0
2001
2002
Source: USDA
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Energy Prices on Pace for Strongest Gain Since 1980
Consumer Price Index (CPI) for Energy
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
1968
1972
1976
1980
1984
1988
Source: Bureau of Labor Statistics, National Restaurant Association
1992
1996
2000
2004
2008*
*Year-to-date
growth through September
Typical Restaurant Operator Reactions
menu reengineering
cost management
productivity
targeted marketing efforts
expansion
Top Challenge Facing Restaurant Operators
September 2006, September 2007 and September 2008
September 2006
September 2007
September 2008
R&R Employees
32%
R&R Employees
34%
The Economy
31%
Sales Volume
15
Sales Volume
16
Food Costs
22
Gas/Energy Prices 13
Food Costs
11
Sales Volume
15
The Economy
8
The Economy
9
R&R Employees
Competition
6
Competition
7
Gas/Energy Prices 6
Food Costs
5
Gas/Energy Prices 3
Competition
Source: National Restaurant Association, Restaurant Industry Tracking Survey
8
1
Top Challenges Facing Restaurant Operators
% of Operators Saying “The Economy” vs. “Recruiting/Retaining Employees”
40%
Recruiting & Retaining Employees
35%
30%
25%
20%
15%
The Economy
10%
5%
0%
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Jul-07
Jan-08
Jul-08
Restaurant Performance Index Fell Below 100…
Values Greater than 100 = Expansion; Values Less than 100 = Contraction
104
103
102
101
100
99
98
97
Jul-02
Jan-03
Jul-03
Jan-04
Source: National Restaurant Association
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
…but Total Sales Remain Above 2007 Levels
Seasonally-adjusted monthly sales at eating and drinking places
2008
$39
2007
$37
Monthly Sales (in billions)
2006
$35
2005
$33
2004
$31
2003
$29
2002
$27
2001
$25
Jan
Feb
Source: U.S. Census Bureau
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Restaurant Industry Outperforming Retail Sector in 2008
Year-to-date growth through September 2008
8%
Eating & Drinking Places
Grocery Stores
6.1%
Total Retail (excluding food)
6.2%
6%
4.2%
4.6%
4.3%
4%
2.3%
2%
0%
-0.1%
-0.1%
-2%
-2.3%
-4%
Nominal
Sales
Menu
Prices
Real
Sales
Nominal
Sales
Grocery
Store Prices
Real
Sales
Nominal
Sales
Source: U.S. Census Bureau, Bureau of Labor Statistics, National Restaurant Association
Consumer
Prices
Real
Sales
Operators Are Uncertain about Sales Growth
Restaurant operators’ outlook for sales volume in six months
compared to the same period in the previous year
50%
40%
47%
39%
38%
34%
32% 31%
31%
29%
30%
29%
30%
28%
25%
30%
20%
37%
38%
34%
29%
29%
29%
34%
33%
29%
30%
16%
10%
0%
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
Higher Sales in Six Months
Jul-08 Aug-08 Sep-08
Lower Sales in Six Months
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Quickservice Operators Are Most Optimistic
Restaurant operators’ outlook for sales volume in six months
compared to the same period in the previous year
50%
40%
40%
36%
28%
30%
32%
32%
33%
31%
28%
26%
26%
20%
10%
0%
Family Dining
Casual Dining
Higher Sales in 6 Months
Fine Dining
Quickservice
Quick-Casual
Lower Sales in 6 Months
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Operators Are Pessimistic about the Economy
Restaurant operators’ outlook for the economy in six months
50%
46%
45%
44%
44%
41%
40%
40%
43%
42%
37%
33%
29%
30%
20%
26%
21%
19%
21%
21%
16%
16%
14%
16%
14%
24%
15%
12%
10%
0%
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
Better Conditions in Six Months
Jul-08 Aug-08 Sep-08
Worse Conditions in Six Months
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Operators Are Pessimistic about the Economy
Restaurant operators’ outlook for the economy in six months
50%
40%
40%
36%
29%
30%
34%
32%
25%
22%
21%
20%
19%
20%
10%
0%
Family Dining
Casual Dining
Fine Dining
Quickservice
Better Than Now
Source: National Restaurant Association, Restaurant Industry Tracking Survey
Quick-Casual
Worse Than Now
Industry
Segments
Total Restaurant Industry Sales
2008 Forecast
$558 billion
$535 billion
2007
Source: National Restaurant Association
2008
Fullservice Restaurant Sales
2008 Forecast
$187 billion
$180 billion
2007
Source: National Restaurant Association
2008
Limited-Service Restaurant Sales
2008 Forecast
$157 billion
$150 billion
2007
Source: National Restaurant Association
2008
Snack and Nonalcoholic Beverage
Bar Sales
2008 Forecast
$20.9 billion
$19.6 billion
2007
Source: National Restaurant Association
2008
Managed Services Sales
2008 Forecast
$38.3 billion
$36.2 billion
2007
Source: National Restaurant Association
2008
Segments With Negative Real Sales Growth
in 2008
Cafeterias, grill buffets/buffets
- 4.6%
Bars and taverns
- 0.6
Managed Services
- Manufacturing/industrial plants
- 0.3
- In-transit restaurant services
- 4.6
Source: National Restaurant Association
Segments With Negative Real Sales Growth
in 2008 (cont’d)
Mobile caterers
- 0.7%
Non-Commercial
- Employee restaurant services
- 4.0
- Elementary/secondary schools
- 0.8
- Colleges/universities
- 3.1
Source: National Restaurant Association
Female Labor Force Participation Rate
1950 to 2007
70%
Percent in Labor Force
60%
50%
40%
30%
20%
10%
0%
1950
1955
1960
Source: Bureau of Labor Statistics
1965
1970
1975
1980
1985
1990
1995
2000
2005
What’s Hot
Hot Items
1
2
3
4
5
Bite-size desserts
Locally grown produce
Organic produce
Small plates/tapas/mezze
Specialty sandwiches
Source: National Restaurant Association; American Culinary Federation, 2007
Operator Survey:
Menu Trends in Quickservice Restaurants
Percent of quickservice operators reporting increase in popularity of the following items
Food
Beverage
Wraps/pitas/tortillas
64%
Energy drinks
Entrée salads
59%
Espresso/specialty coffees 75%
Chicken sandwiches
59%
Bottled water
58%
Breakfast sandwiches
59%
Iced tea/hot tea
42%
Source: National Restaurant Association, 2007
77%
Better Food Quality
Percent of consumers who say:
Food quality is better in sit-down tableservice restaurants
than it was two years ago
76%
Food quality is better in fast food restaurants than it was
two years ago
64%
Source: National Restaurant Association, consumer research 2007
What Consumers Think About Restaurants
Percentage of adults who say:
Going to restaurants with family and friends is a better use of
leisure time than cooking and cleaning up: 82%
Source: National Restaurant Association, October 2007 consumer survey
E-mail Notification
of Daily Specials
30 percent of adults likely to use
if offered by their favorite
tableservice restaurant
Source: National Restaurant Association, Consumer Survey, 2007
Going Green
Percent of operators, by type of operation, who say they intend to spend
a larger proportion of their budget in 2008 to green initiatives
Family dining
23%
Casual dining
31%
Source: National Restaurant Association, October 2007
Fine dining
32%
Quickservice
21%
Workforce
Outlook
Total Restaurant-Industry Employment
10.6
million
1998
15.1
million
13.1
million
2008*
Source: Bureau of Labor Statistics, National Restaurant Association
2018*
* Projected
Potential Labor Shortage
Growth in Key Indicators: 2008–2018
16%
9%
Restaurant Industry
Employment
Total U.S.
Labor Force
One-Half of
Restaurant
Industry
Labor Pool
-7%
16-to-24 Year Old
Labor Force
Source: National Restaurant Association projections, based on historical data from the Bureau of Labor Statistics
Foodservice Occupations:
Proportion of Employees that are Hispanic
1983: 6%
Source: National Restaurant Association
2006: 21%
Table Top Payment
Systems on Rise
Over half of adults (53 percent)
would use if offered by their
favorite tableservice restaurant
Source: National Restaurant Association Consumer Survey, 2007
Wrap-Up
Unfulfilled Demand
for Restaurant Services
Remains High
Over 30 percent of adults are NOT
dining on-premises or using
take-out as often as would like
Source: National Restaurant Association
Opportunities
•
•
•
•
Convenience demand
Decrease on-site labor needs
Develop simple cost/benefit analysis
Energy efficiency and long-term cost
savings
• Value emphasis
Opportunities
• Long term health/nutrition trend
• Joint testing/marketing initiatives
• Promotional opportunities—menu,
table tents, off-premises, on-line
• May 16-19, 2009 NRA Show Chicago
Growth in Key Indicators
2007
2008*
2009*
• Gross Domestic Product
2.0%
1.6%
1.2%
• Real Disposable Personal Income
2.8
1.6
1.0
• Total Employment
1.1
0.0
-0.5
Source: National Restaurant Association
*projected
Growth in Key Indicators
2008
U.S.
Rhode Island
Population
+0.9%
-0.1%
Real Disposable Personal Income (DPI)
+1.6%
-0.1%
Construction Employment
-5.1%
-5.9%
Source: National Restaurant Association, 2008
2008 and Beyond
•
•
•
•
•
Restaurant-industry sales will reach a record high
Record levels also for employees and locations
Weak economic fundamentals
Energy and food cost challenges will remain
Menu — small is big, alternative sourcing, ethnic
ingredients
• Workforce — higher productivity
• Technology more critical
• Modest industry growth expected
Restaurant Industry
2008 and Beyond
Rhode Island Hospitality & Tourism Association
Economic Outlook Breakfast
Providence, RI
October 21, 2008
Hudson Riehle
Senior Vice President Research and Information Services
National Restaurant Association
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