QSR Magazine: These Economic Warning Signs Are Making Consumers and Operators Alike Anxious

Signs are ominous that almost every sector in the $783 billion restaurant industry is in trouble. Although breakfast sales at fast-food restaurants rose 2 percent during the first quarter of 2016, far more critical lunch sales were down 3 percent, while dinner sales were off 2 percent, reports The NPD Group.

It’s as if consumers who never fully recovered from the last recession are now preparing for the next one, says Bonnie Riggs, restaurant industry analyst at NPD. “I’m not an economist, but I’ve studied all the past recessions and how consumers behaved, and we’ve never experienced anything quite like this before,” she says.

Here are a handful of key financial issues that are hitting consumers and restaurant owners alike:

Groceries look like a bargain. Grocery store food prices fell 0.5 percent through the first five months of 2016, even as menu price inflation at restaurants rose 2.7 percent during that same period, Riehle says. That’s a gap of 3 percentage points. For restaurants, of course, it’s preferable to have those numbers flipped so that consumers view eating out as a bargain, he adds.

Convenience stores are stealing share. Many regional convenience store chains have upped the quality of their food and are stealing share from quick service, Riggs says. That’s why in May, while quick-serve sales were flat, convenience store fresh food sales were up, she says.

Value wars have taken a toll. The major fast-food burger chains, in particular, have been embroiled in a price war for months—and it’s only growing. Other quick-service concepts, including sandwich shops and chicken chains, are expected to jump on soon, Riggs says.

In the meantime, she adds, some consumers are trading down from fast casual because they can’t resist the low prices of some of these quick-service deals.