The foodservice sector, which was hit hard by the recession, has shown glimpses of recovery so far this year. Throughout 2009, foodservice operators reported declines in traffic as consumers cut back on restaurant visits. When dining out, consumers also frequently limited their spending, which led to decreases in restaurant revenue. However, this year consumers are beginning to return to restaurants, says Mike Ginley, partner at NextLevel Marketing LLC, Westport, Conn.

“When the economic crisis first hit, initially we saw panic and about 85 percent of consumers cutting back their restaurant spending,” Ginley says. “That has subsided a little bit in the past year. Currently, we see about 70 percent of consumers saying that they’re cutting back their restaurant spending. So the worst seems to be over and things seem to be starting to return to normal.”

This year, the National Restaurant Association (NRA), Washington, D.C., reported a 41 percent increase in customer traffic in March, which declined slightly to 37 percent in April, according to the association’s Restaurant Performance Index.

“Although the sales and traffic indicators softened somewhat from their March performance, restaurant operators remain optimistic that business conditions will improve in the months ahead,” said Hudson Riehle, senior vice president of the NRA’s Research and Knowledge Group, in a statement. “In addition, restaurant operators reported a positive outlook for staffing gains as well as continued plans for capital expenditures in the coming months.”

Seeking promotion
Discounts and promotions have proven to be successful tactics in boosting restaurant patronage, says Joseph Pawlak, vice president of Technomic Inc., Chicago. From fast food chains to full-service restaurants, promotions have beckoned consumers with attractive price points, such as $0.99 burgers, $2.99 combination meals or $9.99 entrees, Pawlak says. Ginley agrees the discounts and deals are attracting consumers’ attention.

“The use of special promotions has increased to where now it’s really the No. 1 way that consumers look to reduce their spending, so they’re going out more, but they’re really more chasing offers, and they’re sticking with those offers,” he says.

Although consumers are chasing offers, they also keep quality in mind, NextLevel Marketing’s Ginley says.

“It’s a challenge for the operators because consumers, while they certainly expect value, are sophisticated enough to know that value is that combination of price and quality, and they truly don’t define value as the lowest price,” he says.

The appeal of price point also helped fast casual chains, such as Panera Bread and Chipotle, Pawlak says. With quality fast food at a higher price point, the chains have performed well, he says.

Fast casual chains are closely related to quick-service restaurants, which have historically led the foodservice industry out of economic downturns, according to CREST foodservice market research by The NPD Group, Port Washington, N.Y.

Positive performance in quick service restaurants also is evidence of consumers trading down to a less expensive dining experience, said Bob O’Brien, senior vice president of global foodservice at NPD, in a statement. A widespread trend during the recession, trading down from full-service to faster, and often cheaper, restaurants intensified in 2009, says Michael Schaefer, consumer foodservice industry analyst at Euromonitor International, Chicago.

Restaurants have used all-day menus to bring back consumers, who are returning at different times of the day, Schaefer says.

“There’s something to be said for versatility – the less dependent you are on any one time of day or on any one type of consumer that’s going to help you regardless of how the economy’s doing, but particularly during a downturn when you’re really fighting for every customer,” Schaefer says. “I think all the things that we’ve been seeing over the last five years – the push for more breakfast, more coffee and more snacking occasions – I think that’s definitely been born out by who’s done well, both last year and this year.”

For some operations, the lack of versatility might have impacted sales, Pawlak says.

“Going to a coffee shop or a beverage restaurant like a smoothie shop, traffic in those operations definitely declined,” he says. “Obviously consumers have less discretionary dollars to spend and one of the quickest ways for them to save money is to reduce their incidences or their purchases within those types of operations.”

At the same time, many restaurant chains placed a larger importance on coffee beverages and smoothies. Seattle-based Starbucks’ Seattle’s Best Coffee brand added distribution in Burger King and Subway chains. McDonald’s, Oakbrook, Ill., attributed this spring’s positive U.S. performance to the popularity of its McCafé Frappe line of beverages. The chain also previewed the launch of its McCafé Real Fruit Smoothies during the 2010 Winter Olympics in Vancouver, Canada. Available in Strawberry Banana and Wild Berry, the smoothies are expected to launch in U.S. McDonald’s restaurants this summer, the company says.


Becoming a destination
Various menu options for different occasions also encourage the growth of a restaurant’s beverage selection, which can be beneficial to a business, Schaefer says.

“If you get people really thinking about the beverage selection, it’s just one more way that you can build the brand loyalty on top of your menu,” he says. “If you have a menu that can serve people throughout the day and a beverage selection that sets you apart, I think you’re going to be in better shape than someone else.”

The Freestyle fountain dispenser from The Coca-Cola Co., Atlanta, is one variety-based innovation attracting attention, Schaefer says. The Freestyle fountain dispenser combines highly concentrated ingredients with water and sweetener for 106 possible beverage combinations of Coca-Cola’s regular and low-calorie beverage lines. The machine features an interface designed by former engineers from Apple computer, uses medical-inspired microdosing technology to deliver concentrates in precise doses, and provides wireless communication technology with Coca-Cola headquarters regarding the performance of the machine and popularity of certain flavors.

The initial test of 70 Freestyle dispensers in Georgia and Southern California from June 2009 to April 2010 found the machine increased total restaurant sales, boosted total beverage and fountain servings sold and also showed a measurable increase in total restaurant paid transactions, the company says. Coca-Cola is expanding the Freestyle’s test this summer by adding Atlanta, Los Angeles, Dallas, Salt Lake City, Chicago and Orlando markets, the company said at the NRA Show in May in Chicago.

“I think it’s going to be interesting to see how Coca-Cola’s Freestyle experiment is going to play out because on the one hand, clearly fountain is an area that is really ripe for innovation,” Schaefer says. “I think there’s definitely room for chains to set themselves apart that way, but I think the big question is how does that affect service time? Because it’s a really interesting idea, and people respond to it when they see it, but if it adds an extra two to three minutes on to an order that doesn’t work.”

The Freestyle is currently only available for customer self-service, but the company announced at the NRA Show that it is developing a crew service machine for drive-through restaurants. Coca-Cola also displayed its Far Coast machine for made-to-order specialty coffee and tea beverages. Currently in test markets, the Far Coast machine makes fresh espresso-based coffee drinks and premium tea beverages. Coca-Cola also highlighted its shelf-stable liquid coffee concentrate products under the Juan Valdez caféReale brand and introduced Georgia Coffee at the NRA Show. Georgia Coffee is available in ready-to-brew packages in dark roast, light roast, decaf and Sustainable Organic coffee varieties.

Consumers also are paying more attention to the nutritional content of their beverages when eating out, Pawlak says. In response, operators are promoting lower calorie and lower fat beverage options, he says. Chicago-based research group Mintel International anticipates healthy eating also is likely to grow as the new federal health care legislation will require restaurants with 20 or more locations to include calorie counts on menus. More than 60 percent of restaurant-goers think restaurants should post nutritional information on menus, according to respondents to a Mintel survey.

As the industry begins its uptick, experts emphasize the role beverages can play in driving consumer traffic.

“The main thing is really beverages becoming more of a focus,” Euromonitor’s Schaefer says. “That’s going to be turned a lot of different ways whether it’s branching out to things like smoothies that drive meal opportunities of their own or a move into things like alcoholic beverages for fast casual chains, but I think that’s always going to be something of a niche.”

When it comes to ordering alcohol in restaurants, Ginley says consumers have adjusted to the recession and are saving money by cutting back consumption.

“In a way, it’s a bad combination in that people are drinking less per occasion and they’re chasing promotional offers, so people’s mindset is ‘Well, if it’s cheaper, I’ll save the money,’ rather than, ‘If it’s cheaper, I’ll have more,’” Ginley says.

Consumers frequently only have one drink when they’re out, and as restaurant performance begins to fare better, operators have recognized opportunities to encourage consumers to trade up and still save money, Ginley says. He suggests offering inexpensive upgrades on promotions once the value-minded consumer is in the restaurant.

“It’s not like the pre-crisis days where the most expensive drink on the menu was the one you wanted to be seen drinking,” Ginley says. “I think it’s still fashionable to be saving money.”

Overall, experts agree the outlook for this year is more optimistic than last.

“From what we’re seeing so far, it’s definitely been a better year than 2009,” Schaefer says. “We’re certainly going to see recovery, we’re going to see return to growth in a lot of sectors, but it’s important not to get carried away. It’s going to be a slow recovery.” BI