Channel Strategies: On-premise industry hit by change in consumer habits
“Technically, we’re not in a recession anymore, but that’s certainly not translating back into consumer spending either on an overall level or specific to going out to bars and restaurants,” says David Henkes, vice president, on-premise practice leader, Technomic Inc. “For every one piece of good news, it seems there’s two pieces of bad news in the economy. With that kind of environment, we’re just not expecting a rapid recovery in the industry.”
In 2010, Technomic predicts that overall on-premise sales of alcohol will decline by 2.5 percent, an improvement over last year’s decline of nearly 5 percent. Technomic includes fine dining, casual dining, bars, nightclubs, lodging, casinos, concessions and other recreation locations in its on-premise category.
“It’s not getting better; it’s just getting worse at a slower rate,” Henkes says. “Things are definitely still going to decline in 2010. The declines won’t be as steep as they were last year ... We think alcohol in general in most segments is probably going to decline a little quicker just, again, because of some of the cutbacks and occasion shifts.”
In the first quarter of 2010, Technomic’s predictions have been confirmed, Henkes says, most notably during the Super Bowl, the first big occasion of the year, where sales in bars and restaurants were down about 5.5 percent. Most of that decline can be attributed to food as alcohol sales dipped by 0.7 percent during the Super Bowl, Technomic says.
What’s the occasion?
Consumers also have changed how they go out.
“Staying in became the new night out over the last year,” says Danny Brager, vice president, beverage alcohol, at The Nielsen Co., Schaumburg, Ill. “From what we’ve seen, certainly the on-premise is still relatively weak. Not as bad as it was, but certainly still declining … The shift from on premise to off premise is just a huge change.”
When consumers do go out to a restaurant, they are cutting back on the “extras,” such as appetizers, desserts and alcohol, Henkes says.
The expected decline of alcohol sales in 2010 would outpace Technomic’s prediction for sales of food and non-alcohol beverages in bars and restaurants, where the company forecasts sales to fall by 1.7 percent. Alcohol sales typically drive the total check up during a restaurant visit, Henkes says, but Technomic reported that check averages were down 6 percent through the first three quarters of 2009. About half of the top 500 chains that Technomic monitors serve alcohol, which accounts for between 15 percent and 18 percent of total sales, Henkes says.
Occasions at bars and restaurants have changed from the family dining experience to more spontaneous outings that are conducive to happy hour and drink specials, Henkes says. As a result, businesses have turned to discounting and heavier emphasis on the bar menu to draw customers inside, where they attempt to up-sell them.
“You can’t get a sale from somebody who’s not in the restaurant – that’s the first thing,” Henkes says. “You start working on people once they’re in the door. That’s really the first step is building the traffic.”
Ruby Tuesday, Maryville, Tenn., has reduced its mixed drink prices across the board and built a pricing tier for consumers to upgrade to premium spirits, Henkes says. A line of tea-based mixed drinks was announced by T.G.I. Friday’s, Carrollton, Texas, in February. The bar has become a dining option for many consumers, Henkes says, and restaurants have been developing more bar-specific menus and food specials, such as discounts, bundling and happy hours.
Bars and nightclubs, the only on-premise category that Technomic expects to grow in 2010, are propping up the overall segment, Henkes says. Bars and nightclubs are predicted to grow by 0.6 percent in 2010 while every other segment is expected to decline by at least 2 percent.
“Not that they’re setting the world on fire, but they’ve certainly held their own relative to some of the other segments,” Henkes says. “The category is still declining, but bars in general are essentially flat in terms of their sales on alcohol … People are still going out to drink, maybe not as often as they were, but perhaps more than they are deciding to go out to eat … A lot of where the cutbacks have been are sort of in those family dining occasions.”
Young people are more likely to go out to drink than to eat, and they likely are helping drive the positive trend in bars and nightclubs despite the economic downturn, Henkes says.
“People go to bars for different things than they go to restaurants,” he says. “They’re more likely to cutback on that dining occasion because that’s something they can replicate at home or get meal solutions from supermarkets … There’s still that socialization aspect of going out to a bar or hanging out with your friends. It’s a little more resistant to the downturn; it’s not immune.”
Competing on price
Fine dining is expected to have the steepest decline in 2010 at 10.4 percent, Technomic says. As a result, the research firm says wine, which is most commonly served in fine dining restaurants, will be the product to fall furthest as on-premise sales slide 6.7 percent. Technomic predicts that beer and spirits will decline by 1.8 percent and 2.1 percent, respectively, in the on-premise channel in 2010.
Beer’s slower decline in the on-premise channel overall has been aided by both the value perception of domestic beer and the dedication of craft beer drinkers, Henkes says. “Within beer, it’s kind of the two ends to the spectrum,” he says. “The domestic side is doing OK, and then the craft beers are doing OK. The imports are really getting hammered. There’s a value perception there.”
Bars and restaurants competing so heavily on price could create a problem when consumer spending returns to normal levels as customers come to expect the prices they have seen during the recession, Henkes says.
“Consumers now are going to be accustomed to paying $12.99 for a three-course meal,” he says. “And, you’re starting to see some chains move away from the discounting and building value in other ways.”
Some restaurants are building value by introducing new products and providing a unique experience, Henkes says. He cites Buffalo Wild Wings as a restaurant that is “not really promoting themselves on price. They’re promoting themselves on experience, variety.”
“I think a lot of restaurants right now are competing on the price because they just want to get people in the door and focus less on that compelling point of difference,” Henkes says.
As it stands, though, Henkes says that recovery is unlikely so soon after a significant economic downturn.
“In a nutshell, 2010 is going to be another down year for restaurants and bars,” he says. BI
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