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Consumers' Cautious Optimism Underpins Restaurant Industry Expansion in 2015

This article is more than 9 years old.

Secretary of State Colin Powell famously said, “Perpetual optimism is a force multiplier,” and that maxim is on display in the restaurant industry, where rising consumer confidence is coinciding with a slight acceleration in the expansion of new locations nationwide.

Technomic is forecasting nominal restaurant sales growth of 4% this year, and much of that increase will come from the opening of new locations among the largest chains, with some inflation in menu prices also factoring in.

Most of the development of these new restaurant locations is likely to occur on the higher end of the industry, with fast-casual chains like Chipotle Mexican Grill leading the limited-service segment and fine-dining brands or “polished casual” chains like The Cheesecake Factory pacing unit growth in the full-service sector.

Among the largest limited-service chains Technomic tracks in its Top 500 study, fast-food brands are expected to have increased their unit count by 1.5% in 2014, a decent pace for a post-recovery economy. But by contrast, fast-casual chains like Chipotle and Panera Bread are expected to grow at several times that rate, or about 7.2%, for 2014.

In the Top 500’s group of the largest full-service restaurant brands, the smaller subset of fine-dining chains is expected to grow its number of locations in 2014 by 3.2%, or nearly twice as fast as the unit-growth rate for casual-dining brands, which is 1.7%. Within that casual-dining group, however, growth is fairly bifurcated between brands that attract a mass audience and those that appeal to a higher-income customer. Polished-casual brands are expected to increase their collective unit count by 6%, compared with an increase of only 1.2% for traditional casual-dining chains like Chili’s or TGI Fridays.

Oscillating frequency

You might surmise that this rise in upscale restaurants is neatly demand-driven, a likely result of more people having more money and looking to dine out at restaurants more frequently. But Technomic’s consumer data reveal a more nuanced picture.

In a recent survey of 1,000 adult consumers, only 41% of consumers expected to eat out at restaurants at least a couple times a week in 2015. A year earlier, heading into 2014, 45% of consumers thought they would dine out that frequently. However, 28% of people plan to eat out at least once a week this year, up from 22% who anticipated one restaurant visit per week heading into 2014.

So if consumers’ visits to restaurants appear to be mostly static in the coming year, why the uptick in restaurant openings?

Looking forward to 2015

Brands, especially high-end ones, are putting more restaurants in the pipeline because they are banking on consumers’ optimism and a sense that things are generally getting better. Technomic’s survey of consumers and their expectations for 2015 found that 44% of people agreed with the statement, “My personal finances will improve,” and 27% agreed with the statement, “Our household will be able to spend more when we dine out”—both of which were up 7 percentage points from a year earlier.

Never mind research from the Bureau of Labor Statistics that shows compensation has been flat for private-industry workers for several years or Pew Research Center data that confirm the widest gap in 30 years of the median incomes of the nation’s wealthiest households and the middle class. Another Pew survey from last January found that, while three-fifths of Americans believe the economic system of the United States “unfairly favors the wealthy,” the same percentage agreed that “people who want to get ahead can if they work hard enough.”

In turn, the industry is apparently anticipating greater demand for a higher level of food quality and service, which is why fast-casual and polished-casual brands likely will lead the way for more new-restaurant development this year. Chipotle not only will continue to open locations of its flagship chain but also expand two other fast-casual brands it either developed or financed, ShopHouse Southeast Asian Kitchen and Pizzeria Locale.

There also is a lot of “keeping up with the Joneses” in fast food and traditional casual dining. Dozens of major brands continue to remodel their stores and update their looks and marketing campaigns, such as Chili’s new advertising that revolves around freshness. To see the perfect example of this pressure to keep up, look no further than McDonald’s, which plans to roll out a “Create Your Taste” platform of customizable burgers and sandwiches to 2,000 restaurants this year.

Restaurant brands this big can make such ambitious investments and plans when they share their guests’ confidence. If there were one reason to be optimistic for the restaurant industry’s growth in 2015, it would be optimism itself.