Foodservice at Retail, Restaurants See Upswing in Customer Spending

NEW YORK -- This past year proved to be good for food retailers – both restaurants and foodservice at retail – and 2013 looks to bring continued good news, according to the findings of AlixPartners' annual "North American Restaurant and Foodservice Review," released last month.

"All in all, [2012] was a decent year," Eric Dzwonczyk, managing director and co-leader of the Restaurant & Foodservice Practice at the global business advisory firm, told CSNews Online. "Consumers are more interested in going back out and the per-check [average] was up 4 percent in 2012, which was a good sign for the industry as a whole."

Last year did not bring any surprises. On the upside, consumer spending was up a bit and it seemed like the overcapacity in the foodservice industry was on its way out. In addition, many operators were able to pay down their balance sheets and get some of the debt off the table, which has decreased the overall level of distress.

The AlixPartners review found that great concepts continued to do well and those that do not appeal to consumers continued to struggle. One interesting development, Dzwonczyk noted, was the increased amount of advertising. "One way of interpreting that is, as competition has ramped up and will continue to ramp up –- not only from traditional restaurants but from convenience stores, grocery and other retail outlets –- everyone has had to advertise more to get consumers," he said. "It is getting more and more expensive to build and maintain traffic."

2012 also saw more people seeking deals. Specifically, AlixPartners' research shows that 74 percent of consumers are out looking for deals, which influences how they make their restaurant decisions. If there is a better deal out there, people are willing to switch as long as they meet the minimum threshold for quality and value, he added.

WHO’S WINNING?

Out of all the foodservice purveyors, fast-casual restaurants are winning the food retailing wars.

"Not surprisingly, fast casual continues to be where a lot of the focus is. A number of those chains and concepts continue to do well," Dzwonczyk explained. "The data I saw had only a couple of them with declining unit volumes in 2012. They vary by theme, ethnicity and service model, but the fast-casual segment overall is really very hot."

Meanwhile, after experiencing declines for the last few years, casual dining held its own last year, even experiencing some unit expansion, specifically in the seafood segment. "That's one area that seems to be doing pretty well. There was unit growth there of more than 2 percent," he cited.

Quick-service restaurants (QSRs), on the other hand, have flattened out, according to AlixPartners’ review. Unit growth has slowed, and thanks partly to the rise of foodservice in convenience stores, "competition continues to be fierce," Dzwonczyk told CSNews Online.

Convenience stores are in a pretty solid position as they are chasing both QSRs and fast casual.

"Starting around 2010, you really started to see a move into expanded dayparts. Everyone said let’s go after these times of days when we don't have a lot of traffic. They did a lot of things to get consumers into the stores at those times and to keep them there," he said. "If you think about how convenience stores play, they can do that same approach pretty easily. You have seen a big investment and ramp up in coffee by convenience stores."

Sheetz Inc., for instance, recently did a major upgrade of its coffee program to try and win the breakfast daypart, as 7-Eleven Inc. has gone after the fresh, healthy consumer with more fresh food in its stores.

As for which c-store retailers are doing foodservice well, Dzwonczyk pointed to well-regarded regional players such as Sheetz and Wawa Inc. They’re melding traditional convenience with the fast-casual model, delivering customized food to go while offering a large prepared food area.

"They are attracting a broad base of consumers. From a family experience, you can find something for everyone," he said. "As long as the price point is right, the food is fresh and you believe the quality is there, there is no reason to believe that this trend won't continue."

For convenience retailers and all foodservice establishments, value and customization are key drivers setting apart the winners from the losers.

"The consumer wants to be able to customize at all parts of the day, and be able to create whatever they want on the spot and feel like they are not paying too much for it," Dzwonczyk explained.

In addition, one emerging trend is the practice of segmenting targeted consumers at a more granular level. For example, some food retailers have begun customizing offers, promotions and advertising to reach Hispanic consumers, and others are targeting Baby Boomers with larger-print menus and different promotions for the different times of day.

Food retailers still seem to stumble a bit when it comes to loyalty programs, however. "In our view, no one really has guest loyalty figured out, and [no] one [program] is delivering huge top-line results," Dzwonczyk said. "In general, what seems to be working the best are targeted e-mails sent out by the company directly to their consumers -- generally right around meal times with some sort of local-store offering built into it. That seems to be one of the means that is most effective in driving traffic."

THIS YEAR’S OUTLOOK

While Dzwonczyk foresees more positive news for this year, the industry does face some challenges, namely rising commodity costs, macroeconomic headwinds and potential labor inflation.

In addition, competition for share of the stomach and the fight for all dayparts will continue to be aggressive.

"On the upside, it does appear consumers are feeling pretty good. From our perspective, they are intending to go out more often than they have in the past. The interesting piece is, that while they say they want to pay less per visit, they also understand they will probably need to pay more because food and labor costs are going up. It is certainly not like it was in 2008 and 2009," Dzwonczyk explained.

"Consumers are going to continue to go out and good concepts will continue to grow both in North America and globally. Concepts that don’t do it as well will hold the line," he continued. "Given that the whole level of distress in the industry is down as whole, I think that bodes well for the rest of 2013."