U.S. restaurants are in for another year of sluggish recovery, as diners focus on deals, unemployment remains stubbornly high and commodity costs rise, according to a new report from advisory firm AlixPartners.
More diners are coming back to restaurants, but they remain fixated on deals like Subway's popular $5 foot-long sandwich special, said Adam Werner, AlixPartners' managing director in charge of its North American restaurant and food service practice.
"They're still really hesitant to spend more money than they're already spending," Werner said.
According to a new AlixPartners survey of 1,000 consumers, diners expect to spend about 5 percent less per meal — around $12.90 — in the next 12 months, versus the prior 12 months.
The percentage of people who planned to spend $5 or less per meal over the next 12 months rose to 11 percent from 6 previously, the survey showed.
Almost two-thirds of diners said they use coupons and other deals to save money on restaurant meals, while 40 percent said they are trading down to less expensive eateries.
Restaurants got a breather on ingredient costs when the U.S. recession hit, but prices for important items like meat, wheat and cooking oil now are up sharply. The AlixPartners survey suggests that many operators will not be able to raise menu prices to help offset those higher costs.
"It's going to be a challenging year on the commodity front. It's not going to make things easier for most concepts," said Eric Dzwonczyk, a director in AlixPartners' restaurant and food service practice.
The report said business at fast-food chains in general would be sluggish this year due to high unemployment and increasing competition from convenience stores, which are upgrading food quality and doing more marketing.
Full-service casual dining chains appear poised for continued improvement, but are still grappling with excess supply — in the bar & grill and steakhouse segments.
Elsewhere, a rebound in business travel should drive a strong turnaround in fine-dining chains.
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