NEW YORK – Since not all periods of economic stress have resulted in traffic declines for operators, concluded a recent study by The NPD Group, contemporary growth in the industry, including for foodservice distributors, will be predicated on seizing market share from competitors, according to one of the researcher’s officials.

While today’s slowing economy is having an impact on the restaurant industry, the Port Washington, NY, researcher’s report reviewed similar situations over the past three decades and discovered that not all periods of economic stress resulted decreased patron attendance for the restaurant industry. Furthermore, the study pointed out, downward trends may not be driven by the economy alone.

The NPD Group’s latest study shows that over the past three decades not all periods of economic stress resulted in traffic declines for the restaurant industry. (Chart courtesy of The NPD Group.)

Harry Balzer, vice president and author of The NPD Group’s annual “Eating Patterns in America” report, believes that, depending on which operator segment the distributor is supplying, revenues this year may not be as bad as some prognostications may claim.

“The environment is about market share. Who’s doing the right things? Which restaurants are bringing out new things to capture a greater share of consumer’s eating-out habits. Today there is more growth in capturing market share than there is in eating out,” Balzer said during an interview with ID.

Distributors nowadays don’t have the luxury of growing by supplying a customer base that is enjoying the benefits of consumers simply wanting to dine out, Balzer said. While Americans will still eat out because they detest cooking at home, they may not be going out as often and perhaps not to their favorite eateries.

“Now it’s all about capturing market share,” he said.

NPD reported that the restaurant industry has gone through five stressful periods in the last three decades, four of which were recession related. The downturn in 1979 was tied to exceptionally high inflation. While each recessionary period had its own unique characteristics, NPD found that current conditions are most similar to those experienced in 1979 and 1980, when the industry experienced it steepest traffic losses.

The restaurant industry posted no organic growth in 2007. Total customer traffic was barely up one percent (0.7%), driven primarily by unit expansion, which suggests that traffic was flat on a comparable-store basis, NPD said in announcing its latest study. This is the smallest traffic gain since the 2000-03 period of unrest.

“While the economy is a major factor here, this particular slowdown goes beyond just plain economics,” observed in the press release Bonnie Riggs, author of The NPD Group’s latest report, “Why This Downturn Will be Different for Restaurants.” “NPD is seeing consumer behavior at restaurants changing.”

Another factor influencing downward trends in restaurant sales is lifestyle changes, NPD indicated.

“One of the changes we’ve been watching is women in the workforce. Over the last several decades the restaurant industry’s growth was heavily driven by a greater percentage of women joining the workforce, but that trend is over,” said Balzer in the announcement. “The trend in working women may be more of a long-term issue for the industry than the current economic situation.”

Not only is differentiation essential for distributors’ success but so is their hands-on support and service, Balzer told ID.

NOW IS THE TIME FOR DISTRIBUTORS TO HELP OPERATORS “There is no better time than now for distributors to ask how they can help their customers. Everybody is affected by the downturn. Now is the time to help operators. Distributors must ask themselves what they can do to help their customers through this short-term issue because we’re all in this together,” Balzer said. “Right now there are many issues facing everyone in business. The question is, as a supplier to that business, how are you going to help your customers to get through this rough time because they are concerned about their health as much as distributors are about theirs.”

Differentiation can come in different forms but one that was cited by Balzer was working harder or servicing better the customer. He believes that it’s axiomatic that if distributors convince their operator-customers that they are able and willing to work more for them, then their accounts will give them more of their work to do.

“So the question is what’s going to make life easier for your customer?” he noted.

While that’s been true throughout history, Balzer said today’s uniqueness rests in the potentially dangerous situation that distributors can’t count on growth coming solely from Americans’ having greater need for the industry’s products.

“We still have need, but this condition pertains to greater need. The word is growth and it has to come at the expense of competitors,” he said.

NPD said that over the past year consumers have been eating more breakfasts and snacks at restaurants and fewer dinners, while historically dinner traffic held up during difficult economic times.

“Consumers are getting fewer main meals at restaurants and even though inflation at supermarkets is the highest it’s been in 17 years, there are more, fast and inexpensive options available to consumers at grocery stores that didn’t exist years ago,” said Riggs in the report. “Ready-to-eat meals, frozen meals, etc. have multiplied over the years giving consumers more options and putting additional downward pressure on the restaurant industry.”

Despite the challenges ahead for 2008, opportunities do exist. Riggs said restaurant operators and marketers need to understand what drives consumer behavior and how they manage their costs when they visit a restaurant.

Balzer told ID that opportunities exist in non-traditional foodservice venues that will soon emerge, such as supermarkets and c-stores, both of which can result in growth for sharp-eyed distributors.

“We know that consumers will always find a way to keep their check size down when economies slow down, and there are many different ways consumers do this,” indicted Riggs. “It is pretty clear that we are not going to have a strong environment moving the industry along in the near term. Customer traffic may stay positive in ’08 but will likely come in below ’07 levels (+0.7%). Restaurant companies need to look for new ways to offer value and find ways to make the restaurant experience as pleasant as possible.”

Confirming that distributors’ optimism is rightly founded on the expectation that consumers will always eat out, Balzer said that the tendency should not be regarded as a universal panacea. He warned that it has not yet been demonstrated that consumers will increase their dining out frequency. More than likely, they will slightly reduce their occasions, which will have positive effects on their pocket books but hurt the industry.

“Make no mistake Americans don’t want to cook, we’re just trying to figure out how to put food on the table the easiest and cheapest way possible,” said Balzer. “With restaurant meals costing three times that of in-home meals, the question is who will do the cooking?”

Distributors have to instruct their sales staffs to be on the alert for new foodservice venues that will satisfy operator and consumer needs and drive their growth.