Industry

Slow Restaurant Traffic Not Affecting Wine

Shift in consumer spending mostly targets fast food spots, most of which don't sell wine

By Paul Franson December 20, 2016
Wines & Vine
Reports that restaurant traffic is declining may have concerned some wineries, but a closer look indicates that it doesn't seem to be affecting on-premise wine sales. The decline most affects fast food, which represents 80% of the market but very little wine business. The NPD Group, a leading global information company, reports that visits to restaurant declined in the third quarter, and visits to quick-service restaurants declined for the first time in five years. However, Jon Moramarco, managing partner of research firm BW 166, which tracks wine industry data, says this may be misleading. "My figures show that consumer spending on premise for alcohol is growing at more than 6% (for domestic wines) on a rolling 12-month basis." Two trends are immediately obvious: Value is rising faster than volume, indicating higher prices, and sparkling wines are growing far faster than still wines on premise. Sparkling sales are only one-tenth of volume (6 million cases versus 63 million), but almost one-third of value ($653 million vs. $1,607 million). Moramarco noted that a number of data sources have tracked on-premise business activities going back many years, including the Census Bureau, Commerce Department and Bureau of Labor Statistics. Over time, consumers have moved more of their spending on food and beverages to on-premise venues rather than food at home. In 1959, 25% of consumer expenditures were on-premise. Today that figure is almost 45%. This trend has typically moderated during recessions, but nothing indicates a change in this historical trend. "Unlike overall food and beverage, consumers have spent between 35% to 40% of beverage alcohol dollars in on premise. Nothing indicates that consumers are shifting their share of dollars away from on premise or that overall on-premise spending is moderating," he said. Why wine sales aren't affected The difference in traffic and wine sales is partly due to concentration of wine sales in conventional restaurants, not quick-service restaurants. Also, he said that many reports about slowing restaurant sales are for same-store sales, but about 10% of restaurants turn over every year, so the statistics do not include the new restaurants. Further, Moramarco explains that since 1987, consumer expenditures have been tracked separately for limited-service restaurants and full-service restaurants (which for these charts includes drinking establishments). Since this data has been available, roughly 45% of consumer spending has been in limited-service restaurants. "Nothing indicates that consumers are moving more of their spending away from full-service restaurants and toward limited-service restaurants," he said Moramarco added, "In full-service restaurants, approximately one-third of consumer expenditures have been for beverage alcohol. Overall growth is continuing in the full-service sector, and the share of expenditures for beverage alcohol is remaining consistent." Nevertheless, restaurants overall are being hit by many trends. NPD reports that squeezed consumer wallets, the rising cost of dining out and changing needs and wants have brought the U.S. restaurant industry traffic growth to a halt in the first two quarters of 2016 and into the negative in the third quarter. Total food-service visits declined by 1% in the third quarter compared to the same quarter last year, and quick-service restaurant traffic, which represents 80% of total industry visits, dropped for the first time in five years, according to NPD's ongoing foodservice market research. Traffic at U.S. fast-food restaurants fell 1% in the third quarter to mark the sector's first traffic decline in five years, said NPD. "The term 'Growing your business in a 1% world' has become a popular mantra for the restaurant industry after six consecutive years of annual traffic gains of just 1%," says Bonnie Riggs, restaurant industry analyst at NPD. "However, over the past six months, restaurant industry traffic growth has come to a standstill and quick-service restaurants, which have been the traffic growth drivers, are now experiencing a slowdown in visits." Riggs, who recently authored the report "Losing Our Appetites for Restaurants," points out that there are multiple reasons why consumers have pulled back on visiting restaurants and chief among them is cost. She states in her report that rising health care costs and/or student debt have reduced consumers' disposable income. According to a survey of the longitudinal panelists participating in NPD's receipt-mining service, Checkout Tracking, 75% of the respondents who have decreased their visits to restaurants say they watch how they spend their money on most or all purchases, and a high percentage of these respondents think that restaurant prices are too high. The cost of the average restaurant meal has risen 21% during the past decade, and with lower grocery prices the price gap between eating at home and dining out is widening. Eighty-two percent of all meals are now consumed at home. "The marketplace is changing, and despite improving economic indicators, the consumer landscape is fundamentally reshaped," says Riggs. "What hasn't changed and won't change is the consumer's need for food service; it saves them time and provides them with an experience. Restaurant operators will need to look for ways to differentiate themselves from the competition. They will need to find the means to stay relevant in consumers' minds-innovative products, unique promotions, competitive pricing, stating the benefits of eating at restaurants compared to home-while delivering an enjoyable experience." Only time will tell whether the trends will indeed affect wine sales.