Economist's Notebook: Restaurant sales will rise in 2014 despite cautious consumer mindset

January 16, 2014
In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy presents the restaurant sales forecast for 2014. The restaurant industry is projected to post its fifth consecutive year of real sales growth in 2014, driven by an improving economy and elevated levels of pent-up demand. However, consumers remain in a recession mindset, which continues to dampen overall growth.

The restaurant industry is expected to register its fifth consecutive year of real sales growth in 2014, according to the NRA's 2014 Restaurant Industry Forecast. Restaurant-and-foodservice sales are projected to total $683.4 billion in 2014, up 3.6 percent from 2013's sales volume of $659.3 billion. In real terms, sales are projected to rise 1.2 percent in 2014, up slightly from a 1.0 percent gain in 2013.

Sales growth in 2014 will be driven by an improving economy and elevated levels of pent-up demand among consumers. When asked in December 2013 if they were using restaurants as often as they would like, more than four in 10 consumers said no. In comparison, during the stronger restaurant business environment of the mid-2000s, typically only one-quarter of adults said they would like to be patronizing restaurants more frequently.

This measure of pent-up demand is elevated by historical standards, and suggests that consumers' appetite for restaurants remains largely unfulfilled. However, as much as they would like to increase spending, consumers continue to hold back because they remain stuck in a recession mindset.

In a December 2013 survey fielded by the NRA, three of four adults said they were concerned about the economy and had cut back either "significantly" or "somewhat" on spending. Only one of four consumers said they were confident in their financial situation and had not cut back on spending. Among consumers who described their personal finances as either "fair" or "poor," nearly nine in 10 said they had cut back on spending.

Consumers remain stuck in this recession rut despite the fact that the economy has added nearly 7 million jobs since the depths of the recession. This sentiment also explains why restaurant sales growth remains below what would be expected during a normal post-recession period. Coming out of the previous four recessions, restaurants registered at least three consecutive years of real sales growth above 2 percent. In the four years that followed the Great Recession, real sales growth topped out at 1.7 percent.

For consumers to fully break free from this cycle, the economy will need to move beyond the starts and stops that have defined the recovery to this point. Consumers want to increase their frequency in restaurants, but the key factor holding them back is a lack of confidence in their financial situations.

Job growth has always been a key driver of restaurant sales, and this will be the case in 2014 more than any time in recent memory. The NRA expects monthly job gains to average more than 200,000 over an entire year for the first time since 2005 - a consistent stream of positive numbers that should help bolster consumers' confidence in the economy.

If the economy improves as anticipated and job growth accelerates in 2014, look for consumers to start burning off some of their accumulated pent-up demand for restaurants.