Flat Year for Fast-Food Is Bad News for the Restaurant Business
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Some bad news not only for the fast-food industry, but the restaurant business as a whole: Apparently not enough people can afford even a cheap meal out.
Visits to quick-service restaurants were flat in the year ending June 2014 compared to the same period last year, as was total restaurant industry traffic, according to a recent study by the NPD Group. Fine dining restaurant visits, with the average check size of $40, were up 3 percent.
Because 80 percent of restaurant visits are at quick-service restaurants like McDonald's, restaurant industry traffic numbers heavily rely on restaurants where the average meal costs just $5.
The NPD Group says that the quick-service industry's stagnant figures can be attributed to economic struggles of low-income customers. While wealthier customers may have money to spend on fine dining, low-income dinners are choosing not to spend money on eating out. Not even the dollar menu is appealing.
If the usual low-income customers aren't showing up, fast-food chains need to expand their appeal to a wider economic segment of the population, say NPD analysts.
“Consumer attitudes and behaviors have changed since the Great Recession began and may well have changed for good,” Bonnie Riggs, NPD's restaurant industry analyst, said in a statement. “But the fact remains that Americans still make billions of visits to restaurants each year, but they are more conscious of their spending and want to be certain that the return on their investment in a restaurant meal is a pleasurable dining experience that meets their needs and expectations.”
With less money to spend, quick-service customers are refusing to compromise their standards just because a meal is inexpensive. The result: the rise of fast-casual chains.
While the NPD Group did not separate fast-food and fast-casual visits in quick-service, fast-casual chains such as Chipotle have posted earnings in the last year that have dwarfed fast-food competition like McDonald's. The public market has been hungry for fast-casual IPOs, as Mediterranean chain Zoe's Kitchen and Mexican chain El Pollo Loco went public in recent months, and burger chain Shake Shack preparing an IPO of its own.
Even companies best known for their fast-food such as Yum Brands and Chick-fil-A are dabbling in fast-casual concepts and features. Perhaps new concepts like Yum Brand's Vietnamese sandwich shop can give the quick-service sector the boost it needs in the coming year.