As more consumers spend a larger part of their budgets on dining, U.S. Census Bureau data noted that sales at establishments for eating and drinking are up over 4 percent this year. And overall industry sales are forecast to hit a high of $863 billion this year, per projections from The National Restaurant Association, CNBC reported.
Morningstar Senior Restaurant Analyst R.J. Hottovy said, according to the report, “Generally speaking, the consumer – particularly the middle to upper-middle-income consumer – is healthy. This group has benefited from stock market gains, stable asset markets [and] wage growth that is pretty healthy.”
The compound annual growth rate (CAGR) for restaurants has been 6 percent since 1970, but the pace slowed in the 10 years after the Great Recession to 4 percent. Even so, $0.25 of each dollar went to restaurants in 1955 compared to over half today. Although restaurant operators do face several challenges like increasing wage costs and a tight labor pool, the consumer spending outlook is strong.
At the same time, restaurant operators are working to lessen the burden of friction for diners. Almost every big player in the space is upgrading stores, adding delivery or growing its technology platform. “Demographics of younger restaurant patrons are dramatically different than baby boomers. Their expectation of restaurant experience basically incorporates some aspect of technology,” said Hudson Riehle, senior vice president of research for the association, per the report.
Consumer spending strength was reflected in many restaurants’ recent earnings reports. As its digital sales continue to rise and a new rewards program takes hold, for instance, Chipotle Mexican Grill came out ahead of expectations from analysts for second-quarter earnings.
The chain’s digital sales grew 99.1 percent and accounted for 18.2 percent of sales in the second quarter, while digital sales grew 100.7 percent to represent 15.7 percent of sales in the first quarter. In a July call with analysts, CEO Brian Niccol said delivery remains a “key driver” of the firm’s digital growth, given enhanced app and capabilities for the website with expanded reach.