Do you know the fastest-growing industry in retail right now? What about the largest retail industry at the moment?
That’s a trick question, because, according to information released by the U.S. Census Bureau in 2015, the answer to those questions were one and the same. The restaurant industry became the largest retail sector in 2015, surpassing grocery store sales for the first time ever and claiming 15 percent of all retail purchases in 2015 (grocery stores came in at 14 percent last year).
But dining out, propelled largely by a new wave of millennial consumers who seem to have made dining out more frequently a part of their lifestyles, has also become the largest growth sector in the retail industry between 2012 and 2015, according to a new study by CBRE entitled “Now Serving Retail Growth.”
And as millennials age and advance in their careers (thus making even more money), this trend shows no signs of slowing down anytime soon.
“For the past few years, the restaurant category (classified as 'food service and drinking places' by the U.S. Census Bureau) has been a clear outlier from other retail segments. Between 2012 and 2015, the restaurant segment not only grew more than any core retail category, it also showed the clearest and most consistent acceleration — a key indicator of growth potential,” according to the study, authored by Melina Cordero and Ashley Hill. “While economic recovery, job and wage growth, lower fuel costs and reduced household debt have all helped drive consumer spending in recent years, there is mounting evidence that the growth in restaurant sales has more to do with fundamental lifestyle changes than purely cyclical trends.”
During the recession of 2008, restaurant sales fared better than any other retail category, with sales falling only about 1 percent compared to a 10 percent dip in overall retail sales, according to the study, meaning that, even in the midst of a recession, hungry consumers were still finding money to eat out.
Restaurant sales also grew faster after the recession than any other sector of the retail industry, according to the study. In 2015, restaurant sales (which include food and beverages) had grown 37 percent higher than their pre-recession peak (which, you guessed it, was also the highest jump in any retail category post-recession).
And spending data now shows that U.S. consumers spend more on dining in restaurants than they do on buying groceries to prepare at home. Data from the Bureau of Economic Analysis for 2015 shows a higher annual growth in spending on meals outside the home — 5 percent — than on goods (4 percent annual growth), services (3 percent annual growth) or food at home (no net growth in 2015).
“These three factors, along with growth acceleration of the past three years, suggest that spending increases may be more than just a sign of post-recession recovery but, additionally, a reflection of fundamental shifts in how and what U.S. consumers spend on food,” according to the study.
Millennials are expected to drive growth in the restaurant sector in the coming years, but they are not currently the “primary spenders” in restaurants and bars.
That honor belongs to the Baby Boomer generation, who spend, on average, $139 per person dining out each month, but only dine outside the home about five times. Gen Xers also spend more in dining out each month than millennials ($123 per person), despite only dining out about seven times a month.
Millennials dine out almost 15 times a month — counting purchases like coffee or snacks from Starbucks, fast-food and fast-casual buys, like Chipotle, more expensive full-service restaurants and the occasional fine dining foray — but only spend about $103 per person per month when doing so.
“Millennials dine out twice as often as Generation Xers and three times as often as Baby Boomers but spend 16 percent less than Generation Xers and 26 percent less than Baby Boomers,” according to the study.
Commercial landlords seem to be well-aware of these shifting retail trends, and you are already seeing this play out in the ever-changing layout of your local shopping mall.
More and more “anchor stores” at shopping malls across America are being replaced with restaurants, because the popular ones — such as The Cheesecake Factory — draw just as many customers to the mall, offer a more unique and personalized experience and are more resistant to consumer habits that seem to be migrating more and more online every day.
“Restaurants are viewed as strong traffic-drivers that draw frequent and regular customer visits, which create opportunities for the neighboring retail offer,” according to the study. “For retail landlords, expanding a restaurant offering is a way to counterbalance the declining sales seen in low-growth soft goods categories and build a tenant mix more resistant to eCommerce penetration.”
So, expect to see more restaurants and less shops at your local mall or shopping plaza in the near future.