story by Kim Souza
ksouza@thecitywire.com
Restaurants and food service venues expect sales to grow by a modest 1% this year, while they wrestle with higher food inflation and appeasing value-seeking consumers, according to the NPD Group.
Restaurant analyst Bonnie Riggs of NPD notes that in 2015 operators must offer more choices – like portion size, right price – deliver on customization and fresh ingredients, use different preparation styles, and place more focus on quality because that is what discerning consumers expect.
In 2014, restaurant and food service sales totaled $683.4 billion, an increase of 3.6% from 2013. Adjusted for inflation, sales rose 1.2%, according to the National Restaurant Association.
TOURISM SECTOR JOBS
Hudson Riehle, research executive with the trade group, said restaurant owners have reported increased traffic and higher register sales as a direct result of lower gasoline prices which buoyed up the NRA’s performance index for November, the most recent reading. He said hiring is up across the industry despite several states including Arkansas, implementing minimum wage hikes on Jan. 1.
Arkansas’ tourism sector (leisure & hospitality) employed 109,400 during November, up from 109,200 during October, and above the 106,600 during November 2013. The November number, if it stands, marks a new record for employment in the sector.
Employment in the Northwest Arkansas tourism industry was 22,400 during November, down from 22,600 in October but ahead of the 21,400 in November 2013. Sector employment reached a record of 22,800 in September. Employment in the regional sector is up 49.3% compared to the 15,000 employed in November 2004.
Employment in the Fort Smith metro tourism industry was 9,800 during November, down from unchanged from October and above the 9,400 in November 2013. The sector reached an employment high of 9,900 in August and September.
FOOD INFLATION
While rising labor costs are an issue for some, industry experts say inflationary food costs present a larger problem for the industry as a whole.
“Restaurant operators continue to deal with the highest levels of wholesale food inflation in three years, up 5.3% through the first 11 months of 2014,” Riehle said. “Certain commodity groups are leading this price inflation with butter up 39%, pork up 22%, eggs up 20% and beef rising 18% from a year ago.”
He said operators were faced with raising menu prices in 2014, up 2.3% on average, which meant their overall margins were squeezed.
Rep. Micah Neal, R-Springdale, and owner of Neal’s Cafe in Springdale, said his venue is having a good winter in terms of traffic and ticket increases over a year-ago.
“The lower gas prices are really helping put more disposable income into consumer’s pockets which is good for restaurant operators. Last year we had to shut down the first few days of December, January and March because of snow storms and the weather. So far this winter has been good,” Neal said.
Balancing inflationary food costs are just part of the business, Neal said. It’s not just that dairy is up, but beef is at its all-time high. He said wages and insurance rates also go up each year at his operation.
“The minimum wage increase didn’t impact me at all this year,” he added.
Neal said he pays above minimum wage and raises his menu prices annually to give his long-time workers their annual cost-of-living increases. As long as gas prices stay down Neal expects most restaurants should benefit as consumers are less likely to balk at higher menu prices.
CONVENIENCE, TECHNOLOGY
Riggs said operators will also be challenged by consumers demanding convenience, portability, time-savings and order accuracy. She said technology has raised the bar in all these areas, making online marketing no longer a nice-to-have for operators, but a necessity.
The New Year is expected to bring an onslaught of mobile apps for ordering and payment options that could enable greater convenience for restaurant customers. Riggs said operators who quickly adopt technology enhancements should win the favor of convenience-seeking consumers.
Other areas Riggs suggest restaurant operators to focus in 2015 include vegetarian options, spicier flavor profiles, Wi-Fi for customers, appropriately-priced kid menu , friendly in-store environment to lure Baby Boomers, and technology applications to appeal to Millennials.