Retail

Has The Restaurant Industry Leveled Off?

Is the restaurant boom finally coming to an end?

For years, the restaurant industry was growing like crazy, but new data seems to indicate that might not be the case any longer.

In 2015 alone, propelled mainly by a wave of millennial consumers who seemed to make dining out more frequently a part of their lifestyles, the restaurant industry was both the fastest-growing retail industry and the largest retail sector.

Even during the recession of 2008, restaurant sales fared better than any retail sector that year, with sales dropping only 1 percent compared to a 10 percent dip for the overall retail sector.

But is the boom in the restaurant industry finally starting to run out of steam?

That’s what new data from The NPD Group, a leading global information company, seems to indicate.

According to NPD’s 2016 spring restaurant census, the total count of U.S. restaurants stood at 624,301 units as of March 31 of this year, which actually represents a 1 percent decline from the number of restaurants during the same time last year, which stood at 632,572.

Chain restaurants held steady on the year and actually increased by a little bit more than a 1,000 units nationally from 291,794 in 2015 to 292,832 in 2016. But the independent restaurant sector, which NPD said is “particularly challenged in a soft environment,” declined by 3 percent for full-service restaurants over the past year and saw a 2 percent decline in the quick-service sector.

In March 2015, there were 340,778 independent restaurants in the U.S. but only 331,469 independent restaurants by March 2013.

Major chain restaurants actually enjoyed a 1 percent growth over the past year, according to NPD’s data, while quick-service dining was also up 1 percent during that period (quick-service dining accounts for 80 percent of total restaurant traffic). Family dining options actually declined by 4 percent over that period, while casual dining locations fell by 3 percent.

“The decline in U.S. restaurant units overall is a reflection of the industry’s stalled traffic growth,” Greg Starzynski, director of product management at NPD’s foodservice group, said in a statement. “Our forecast finds that U.S. foodservice visit growth will be less than 1 percent in the coming years, which means there will not be significant unit expansion for a while.”

Part of the problem in the restaurant sector could be due to a slowdown in lunch service, which NPD said makes up about a third of all restaurant traffic.

But the lunch sector has posted steep declines in traffic over the past six months, according to NPD, with lunch traffic at restaurants in the U.S. dropping by 4 percent in the second quarter of 2016 alone, which was the steepest decline of any meal time.

“The rise of employees working at home and more shopping online, which cuts down on foodservice meal and snack breaks, have been contributors to the softening of lunch traffic, and recent menu price hikes have steepened lunch visit declines,” according to The NPD Group.

All restaurant types, except for traditional quick-service restaurants, have been losing lunch visits of late. Casual dining establishments saw a 6 percent decrease in lunch traffic during the last quarter, while fast-casual restaurants lost 9 percent of overall lunch traffic; weekday lunch visits were down by 7 percent overall for the quarter.

NPD chalked the decline up to the 24 percent increase in workers who now work from home over the past decade, which means they are most likely not going out for lunch, and an 8 percent increase in online shopping by consumers during their lunch breaks over the past year. Also, about a 5 percent increase in the average cost of a lunch to $8 over the last quarter might be causing some consumers to lose their appetite.

“Simply said, who can afford to go out to lunch on a regular basis when checks have risen for some as much as they have recently?” according to Bonnie Riggs, NPD Group’s restaurant industry analyst. “Historically, foodservice lunch has been the occasion where consumers didn’t want to invest a lot time, money or energy into this meal. It’s apparent by the drop in lunch traffic that the current value proposition isn’t meeting these needs.”

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