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Restaurant chains try to woo a younger generation

by STEPHANIE STROM New York Times News Service on June 09, 2013 2:20 AM

From sun-dried tomato wraps to agave-sweetened smoothies, restaurant chains are working to court an exceptionally particular generation — the millennials.

For reasons as varied as the economic downturn and a heightened interest in local foods, a significant shift in eating patterns is under way among the millennials, those 18 to 30. At least by historic trends, they are eating out less than the baby boomers did at that age. Many in the restaurant business worry that it might be impossible to reverse the decline, which affects 50 million to 60 million young people.

The statistics alone are stark. Restaurant visits among millennials have fallen 16 percent over the past four years, according to research by the NPD Group, a consumer marketing firm, and have failed to pick up as the economy has improved.

“The outlook for the restaurant industry over the next 10 years is dismal,” said Bonnie Riggs, a restaurant industry analyst at NPD.

Overall, sales are expected to grow less than 4 percent in the next decade, a troublesome projection not only for burger chains like McDonald’s but for the newer “fast-casual” dining businesses such as Chipotle. McDonald’s stunned investors last month when it announced that its sales in stores open at least a year had fallen 1.2 percent after rising every quarter for almost the past decade.

And so far, restaurant chains have failed to benefit from the steady improvement in the overall economy.

“The informal eating-out industry is either flat or declining in many markets around the world,” the chief executive of McDonald’s, Don Thompson, told investors last month.

It is true that restaurant chains like Chipotle, which has a devotion to explaining the origins of its ingredients that brings to mind the “Portlandia” sketch about a chicken dinner, and Subway, where customers plan their own sandwiches and watch them being assembled, are doing better among the millennials than are traditional sit-down restaurants and fast-food chains.

But between the proliferation of artisanal food trucks and items like cupcakes made of Valrhona and Callebaut chocolates and topped with a fondant daisy for $2.75 at Georgetown Cupcake or FreshDirect’s offering of “heritage” pork from the Flying Pigs Farm in upstate New York, millennials tend to spend their dining dollars sparingly and in a more calculated way.

“This was the group hardest hit by the economic crisis, and there’s a debate right now about whether their purchasing behavior has changed fundamentally as a result,” said Tony Pace, chief marketing officer for Subway. “I think personally that there appears to be a structural change. There isn’t a single point — ta-da! — that points to it, but there are a lot of little things that do.”

According to NPD, it is not that millennials have abandoned fast food altogether: Hamburger chains such as McDonald’s, Wendy’s and Burger King get nearly 28 percent of the millennials’ fast-service patronage. They just tend to eat there less often, or they have switched to newer burger places like Shake Shack, Mooyah, In-N-Out Burger and Smashburger.

Pulin Modi, 32, said he preferred newer concepts like Protein Bar, a “quick service” restaurant with 12 locations in the Chicago area and Washington, where he works. He said newer chains tended to offer more choices for vegans such as himself.

“They’re not all vegetarian or vegan,” Modi said of Protein Bar, “but they have so many options that will work for vegetarians and vegans, like quinoa, tofu and smoothies made with almond milk or soy.”

He also frequents the new juice bar in a Walgreens near his office. And he has been eating more at home.

“When you’re 18 years old, it may not sink in how much the cost adds up when you eat out compared to when you bring your own lunch or have a friend over for dinner,” he said. “I’ve learned how to eat healthier and within a certain budget.”

Of course, cyclical challenges like bad weather, higher gasoline prices and the end of the federal payroll tax cut also have hurt restaurant sales.

Additionally, comparisons to last year’s sales are tough because the weather was warmer a year ago, and people were eating out more.

“This winter was longer, and I think I went out less because of that,” said Adriana Villasenor, 32, of New York City.

Even Chipotle eked out a mere 1 percent sales gain in the first quarter this year. The chief financial officer, John R. Hartung, told analysts that the low level of sales growth threatened to erode the company’s traditional profit margins.

Several companies told analysts they would effectively buy customers with promotions and other price strategies to try to keep traffic through their stores stable, which would also eat into profit margins. Olive Garden, for example, is promoting a three-course Italian dinner for $12.95.

“All of them are behind last year,” said Malcolm M. Knapp, an adviser to the restaurant business who compiles data used by Wall Street and others to gauge sales. “It all came to a head in February, when consumers were feeling shock, anger and betrayal over payroll taxes and the weather wasn’t all that good either.”

He said comparable store sales had fallen 5.2 percent that month after slumping 0.6 percent in January. Sales picked up in March but not enough to offset the declines in the previous months.

Riggs from NPD said the biggest opportunity for restaurants now was among the baby boomer generation, which unlike aging generations before it, is eating out more as it gets older.

“The growth of the morning meal at restaurants is almost entirely supported by boomers,” she said. “They’re holding the industry even at this point.”

To cover that base, McDonald’s has a new egg white McMuffin.

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