Restaurants are being “de-prioritized” by consumers, according to the third quarter 2012 survey of 2,000 consumers by Goldman Sachs Equity Research. In its report Americas: Restaurants the researchers note that this development is in contrast to the housing, autos and broader retail sectors that have “mostly held up”. Consumers intent to spend on restaurants has “meaningfully declined” year over year, while it is up in other categories. In essence, in an environment of forced choices, consumers are prioritizing other areas of spending over restaurant visits. Furthermore, when they do go to restaurants, consumers are increasingly price-conscious. The number of consumers who reported price as being a top three reason why they choose one restaurant over another is higher today than at any other time in the Goldman Sachs surveys, including at the peak of the financial crisis.
The report explained that “price sensitivity” is up for all age groups and for households with incomes under $90,000. Looking at the percent of consumers who ranked price as the number one determinant in selecting one restaurant over another (versus being a top three reason), it was found that price sensitivity is up for all age groups over the past two years despite the ongoing economic recovery. Looking at incomes, however a bifurcation is seen. Price sensitivity is up for consumers with incomes under $90,000, but flat to down for those with incomes over $90,000. This finding is further evidence of the ongoing strain for consumers in the low- to middle-income groups, the report said.
Survey results suggest a relatively stable consumer overall, but there are “some seeds of concern” underlying the data. Consumer pessimism “ticked up a bit” from the second quarter 2012 survey, at a time when consumer discretionary cash flow growth has moderated. Households with incomes over $50,000 reported an increase in credit card debt to make up the difference, but households with incomes under $50,000 did not, which may be due to lack of readily available credit. This situation may explain high-end out-performance at retail versus low-end softness.
Restaurant same-store sales have decelerated from their prior year-to-date run-rate, and have seemingly decoupled from the broader discretionary complex. Despite big picture fiscal issues, consumers seems to believe they are in decent shape. The percentage of those that report being optimistic, which has bounced between 10 percent and 20 percent both pre-and post-recession, is sitting comfortably near 20 percent. There was, however a modest uptick in the third quarter 2012 survey of those that report being pessimistic and of those who report that they plan to spend less in the coming months. Given the upcoming fiscal cliff, and the experience in second half 2011 around the debt ceiling when consumers pulled back, the report noted it would be worthwhile to “keep a close eye on this dynamic”. In a related finding, the survey reported that steakhouse ratings have fallen off while pizza scores went up across the board. Steakhouse scores declined, perhaps because of the ongoing price increases at these concepts to help offset beef price inflation, the report concluded.
