HIGHLIGHTS OF THE 2005 FORECAST
The state of New Hampshire is expected to post restaurant* sales of $1.9billion in 2005, a 5.5 percent increase over 2004.
In total, the states in New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont) are projected to register restaurant sales of $21.6 billion in 2005 – representing a 4.8 percent increase over their 2004 level.
New England’s expected restaurant sales volume of $21.6 billion will represent 6 percent of the total for the nine regions in 2005.
Regional Distribution of Restaurant Sales
Source: National Restaurant Association
*Restaurant sales on the state level include sales at eating places and managed-restaurant-services providers (contract foodservice).
Excluded are sales at establishments primarily engaged in preparing and serving alcoholic beverages for immediate consumption.
Nationally, total restaurant industry sales (including all meals and snacks prepared away from home) are projected to reach $475.8 billion in 2005 – up 4.9 percent over 2004. Restaurant sales (comparable to the sales grouping on the state level) are expected to post a5.2 percent gain above their 2004 level.
New England’s projected restaurant sales growth of 4.8 percent will be below the expected 5.2 percent growth rate of restaurant sales on the national level.
Projected 2005 Growth in Restaurant Sales
Source: National Restaurant Association
Menu prices are expected to grow 2.7 percent in 2005 – down from a 2.9 percent gain in 2004. Growth in menu prices will be slightly above the overall inflation rate in 2005.
Wholesale food prices are expected to increase 2.3 percent in 2005, after growing5.0 percent in 2004.
STATE AND REGIONAL OUTLOOK
Economic conditions improved in each of the nine U.S. regions in 2004, and the trend is expected to continue in 2005. Job growth is projected to accelerate across all regions in 2005, while disposable personal income growth is expected to remain solid. Although population growth varies widely on the regional basis, each region is expected to add residents in 2005, which also bodes well for restaurant industry growth.
Restaurant sales growth is generally the strongest in regions with the fastest-growing economies. In recent years, the South and the West led the nation in economic growth – a trend that is expected to continue in 2005. The top five regions in terms of restaurant sales growth are located in either the South or the West, while the top 15 states in terms of sales growth are also located in either the South or the West.
2005 State and Regional Highlights
The Mountain region is projected to set the pace with restaurant sales growth of 6.5 percent in 2005. The Pacific and South Atlantic regions are expected to post restaurant sales gains of 5.8 percent and 5.6 percent, respectively.
The East North Central region is expected to post restaurant sales growth of 4.3 percent in 2005 – lowest out of the nine U.S. regions.
On the state level, Nevada is projected to lead the nation with restaurant sales growth of 7.6 percent, followed byArizona (6.9 percent), Colorado (6.5 percent), Utah (6.4 percent) and Georgia (6.3 percent).
In terms of sales volume, the Pacific region is expected to lead the nation with restaurant sales of $68.3 billion, followed closely by the South Atlantic region at $67.4 billion.
California is projected to register restaurant sales of $51.5 billion in 2005 – the largest sales volume in the nation. Texas is expected to finish second at $29.2 billion, followed by New York at $23.3 billion and Florida at $19.9 billion.
NEW ENGLAND
Job growth in New England is expected to improve dramatically in 2005. Total employment in the region is projected to increase at a 1.8 percent rate – identical to the national average and up sharply from a 0.2 percent gain in 2004. In addition, the projected employment gain would represent the region’s strongest growth since 2000. New Hampshire is expected to lead the region with a 2.3 percent employment gain, followed by Rhode Island at 1.9 percent and Massachusetts at 1.8 percent.
Total Employment Growth: New England vs. United States
Source: Bureau of Labor Statistics, National Restaurant Association; *projected
Although disposable personal income growth is expected to improve in 2005, New England’s projected 3.0 percent gain in real disposable personal income remains below the projected national growth of 3.3 percent. Within the six-state region, New Hampshire is expected to set the pace with real income growth of 3.6 percent, followed by Connecticut with a 3.4 percent projected increase.
New England’s population growth continues to lag behind the national average. The region is projected to add residents at a 0.5 percent rate in 2005 – well below the expected 0.9 percent population gain for the nation as a whole. New Hampshire is the only New England state projected to add residents at a rate above the national average in 2005, with projected population growth of 1.1 percent.
Restaurant sales in New England are expected to total $21.6 billion in 2005, a 4.8 percent increase over 2004 and slightly below the projected national growth of 5.2 percent.
Within the region, New Hampshire is projected to set the pace with a solid 5.5 percent gain in restaurant sales. Rhode Island is expected to post sales growth of 5.1 percent in 2005, followed by Massachusetts at 4.7 percent. Massachusetts, with projected restaurant sales of nearly $11 billion, represents over half of New England’s total restaurant sales.
Projected 2005 Growth in Restaurant Sales
Source: National Restaurant Association
ECONOMIC OUTLOOK FOR NEW HAMPSHIRE
Total non-agricultural employment in New Hampshire is expected to grow at a 2.3 percent ratein2005, compared to New England’s projected 1.8 percent gain and the 1.8 percent increase expected on the national level.
Real disposable personal income is forecast to advance at a3.6 percent rate in New Hampshire in 2005, compared to 3.0 percent in New England and3.3 percent in the nation as a whole.
Population is expected to grow 1.1 percent in New Hampshirein 2005, compared to a 0.5 percent gain in the region and a 0.9 percent population increase in the nation.
New Hampshire’s projected restaurant sales volume of $1.9 billion will represent 9 percent of New England’s total restaurant sales in 2005.
Distribution of Restaurant Sales in New England
Source: National Restaurant Association
OVERVIEW OF THE INDUSTRY
Restaurant industry sales are projected to reach a record $475.8 billion in 2005, up 4.9 percent over 2004, according to the National Restaurant Association’s 2005 Restaurant Industry Forecast. On an inflation-adjusted basis, restaurant industry sales are expected to increase 2.1 percent in 2005, which would represent the 14th consecutive year of real growth in the industry. On a typical day in 2005, the restaurant industry will post average sales of more than $1.3 billion.
The projected 2.1 percent real increase in restaurant industry sales in 2005 will be down slightly from the 2.4 percent gain registered in 2004, and equal to the 2.1 percent real increase posted in 2003. However, growth in 2005 will still fall short of the solid gains registered during much of the 1990s.
Restaurant Industry Real Sales Growth, 1971 – 2005
Source: National Restaurant Association
Over the past several decades, the restaurant industry has truly become a national economic juggernaut. Now including commercial, noncommercial and military restaurant services and covering almost 40 individual segments, the industry has evolved into a mega-industry – a set of industries nestled within the overall umbrella of the U.S. restaurant industry.
Each segment has its own challenges, opportunities and unique operating characteristics. Within the industry “portfolio,” some segments are exhibiting dramatic growth, some are posting average growth and a few are actually declining. But overall, this portfolio of related-yet-distinct industries – the colorful and vibrant mosaic that makes up the U.S. restaurant industry – continues to post record sales.
Year after year, the main factor driving the industry’s growth remains the unrelenting consumer demand for the industry’s products and services. As consumers continue to drive the industry forward, operators have become more responsive than ever in meeting and exceeding consumers’ wants and needs. Sales gains are being driven by other catalysts too: gains in consumers’ real disposable incomes; a need for convenience and less time available for busy Americans to cook at home; more restaurant establishments than ever before; advances in food-preparation techniques and greater availability of produce, new products, flavors, seasonings and spices; heightened media exposure for the culinary arts and celebrity chefs; better trained restaurant staffs; new menu solutions to health and wellness challenges; and finally, the consumer pursuit of fun and entertainment.
The typical American consumer now spends almost 47 percent of his or her food dollar in the restaurant community. Restaurant operators do not take this responsibility lightly. The industry’s quest for excellence in all that it does – from food safety to food quality to employee training – has reached record levels.
Despite the challenges – some long-standing, many new – the restaurant industry is an industry of innovation, flexibility and extreme responsiveness. In 2005 restaurant-and-foodservice operators will rise to the challenges. Restaurants embody the core American values of democracy and diversity. The industry remains one of the last bastions of the nation’s entrepreneurial spirit, a place where hard work can lead people to fulfill their own American Dream, a place where individuals can rise from the dishroom to the boardroom. Ample opportunities for growth lie ahead in 2005 and beyond, as the societal shift in food preparation continues its transition from at-home to away-from-home.
2005 ECONOMIC OUTLOOK: SOLID GROWTH AHEAD
The U.S. economy registered robust growth in 2004, and the restaurant industry reaped the benefits. U.S. gross domestic product (GDP) – the value of goods and services produced in the United States – increased at a strong 4.4 percent inflation-adjusted rate in 2004, up from a 3.0 percent gain in 2003 and the strongest increase in five years.
In recent years, economic growth was driven by consumer spending, which accounts for approximately two-thirds of all economic activity. Although total consumer expenditures increased registered their strongest gain in four years, the most positive development for the economy in 2004 was a solid increase in business investment. Business spending on equipment and software increased at a robust double-digit rate in 2004, its strongest gain since the mid-1990s. Meanwhile, business spending on structures also posted a real increase in 2004, after declining in each of the previous three years.
Job growth also came on strong during 2004. Between September 2003 and November 2004, the national economy registered 15 consecutive months of employment gains, for a total of 2.3 million jobs. In total, the U.S. economy added jobs at a 1.0 percent annual rate in 2004, after posting two consecutive years of employment losses on an annual basis.
Despite the improving economy in 2004, it was clear from restaurant operators that some local economies are not yet enjoying the fruits of the national economic expansion. In an October 2004 survey, roughly half of fullservice restaurant operators said their local economy is having a negative impact on their business, while only about one out of four indicated that it is positively impacting their business.
Among quickservice operators, the economic sentiment is mixed. Forty-seven percent of quickservice operators said their local economy is negatively impacting their business, while 43 percent of quickservice operators said their local economy is positively impacting their business.
Monthly Change in U.S. Total Non-Agricultural Employment
Source: Bureau of Labor Statistics; figures are seasonally-adjusted
Outlook for 2005
Although national economic growth in 2005 is not expected match the robust gain posted in 2004, growth is still projected to outpace the economy’s long-term average growth rate. The National Restaurant Association projects real GDP to increase at a 3.5 percent rate in 2005, slightly above the 3.4 percent average annual increase during the last 75 years.
Disposable personal income – an important indicator of restaurant industry growth – is expected to increase at an inflation-adjusted 3.3 percent rate in 2005, matching the gain posted in 2004. As an industry in which a large proportion of the growth is driven by cash on hand, the steady growth in disposable personal income points toward continued gains in the restaurant industry throughout 2005.
Now that the economic expansion is firmly entrenched, businesses are adding jobs at a steady rate. This trend is expected to continue in 2005, with the economy posting job growth of 1.8 percent – up from a 1.0 percent employment gain 2004.
Total U.S. Employment Growth, 1998 to 2005
Source: Bureau of Labor Statistics, National Restaurant Association; *projected
Highlights of the 2005 Economic Outlook
Solid economic growth: Real GDP is projected to increase at a 3.5 percent rate in 2005 – down from the 4.4 percent gain posted in 2004.
Continued growth in disposable personal income: Real disposable personal income is expected to increase at a 3.3 percent rate in 2005 – matching the 3.3 percent gain registered in 2004.
Improving job growth: Total nonagricultural employment is projected to increase at a 1.8 percent rate in 2005 – an improvement over the 1.0 gain registered in 2004.
Modest inflationary environment: The Consumer Price Index is projected to increase at a modest 2.5 percent rate in 2005 – down from a 2.7 percent gain in 2004.
FULLSERVICE OUTLOOK
Fullservice-restaurant sales are projected to total a record $164.8 billion in 2005, an increase of approximately $7.8 billion over their 2004 sales level. The expected 2005 growth rate of 5.0 percent will be down from the solid 5.4 percent gain posted in 2004, but stronger than the 4.4 percent increase registered in 2003. In real terms (adjusted for inflation), fullservice-restaurant sales are projected to increase at a 2.2 percent rate in 2005, slightly below the 2.4 percent real gain registered in 2004. In 2003, the fullservice segment posted inflation-adjusted sales growth of 2.2 percent.
The solid economy is a bright spot for fullservice operators. Although some operators are still concerned about their local economies, a strong 75 percent of fine-dining operators, 69 percent of casual-dining operators and 61 percent of family-dining operators reported in an October 2004 National Restaurant Association survey that they expect their sales in 2005 to be higher than in 2004.
Fullservice Operators’ Outlook for Business in 2005
Source: National Restaurant Association
Continued growth in the international and domestic travel-and-tourism markets should help spur fullservice-restaurant sales as well, and so should the continued growth in the share of U.S. households with incomes of $75,000 or more. The U.S.’s largest demographic group – the baby-boomers, whose oldest members are now approaching age 60 – also will continue to fuel sales in fullservice restaurants. Their effect is likely to be felt in the menu mix at fullservice restaurants, reflecting the boomers’ increased emphasis on health and wellness.
Fullservice Challenges
While many fullservice operators saw their top challenge in 2004 as the economy, more fullservice operators cite increased competition and higher food and operational costs as their top concerns for 2005.
Among the challenges expected for 2005:
Rising costs. National Restaurant Association surveys show that rising costs put a squeeze on fullservice-restaurant operators in 2004, and that operators expect that the same will be true in 2005. More than six in 10 fullservice-restaurant operators reported in October 2004 that rising food, energy and health-insurance costs were having a negative impact on their business. Fourteen percent of fullservice operators predicted that rising food and operational costs would be their single top challenge in 2005, ranking only behind increased competition.
Operators are caught in a difficult spot when costs rise. Menu-price increases are not an easy option. Even in the fine-dining segment, more than half of operators report that their customers are more value-conscious compared to two years ago. And there is not a lot of room in a restaurant’s profit-and-loss statement to cushion the impact of rising costs. Depending on the type of operation, pre-tax profits for fullservice-restaurant operators average around 4 percent, according to the National Restaurant Association’sRestaurant Industry Operations Report 2004. So when costs rise, fullservice restaurants first look to become as efficient and productive as possible.
The drive for higher productivity. More than three out of five fullservice operators reported in an October 2004 National Restaurant Association survey that their operation is more productive than it was two years ago. Restaurants are boosting their productivity in multiple ways. One is better employee training. Approximately one-third of fullservice operators expect to increase the proportion of their budget allocated toward training in 2005. Another is a bigger investment in technology. Roughly three out of 10 fullservice-restaurant operators say they will allocate a larger share of their budget to technology spending in 2005.
Fullservice operators also are getting more sophisticated and aggressive about leveraging existing assets such as equipment, staff and facilities to diversify sales and generate higher revenues. For example, fullservice-restaurant operators are capitalizing on the takeout market; more than two out of five report takeoutrepresents a larger proportion of their total sales than two years ago, according to National Restaurant Association research. About half of fullservice operators offer catering, and about half of these report that catering accounts for more of their sales than two years ago.
Banquets are another way to diversify sales. According to Association research, approximately two-thirds of fullservice operators offer banquet facilities, and nearly half of these operators report that banquet business accounts for a higher share of their sales than two years ago.
There also appears to be room for fullservice restaurants to grow their delivery business. Currently, only approximately 17 percent of family- and casual-dining restaurants and 6 percent of fine-dining restaurants offer delivery, but consumers are interested in more delivery options. Sixty-two percent of adults surveyed said they would be likely to use a delivery option if offered by their favorite fullservice restaurant. Consumers in larger households indicated that they would be more likely to use the delivery option from a fullservice restaurant. Seventy-three percent of adults in households with three or more people said they would be likely to utilize delivery from their favorite fullservice restaurant, compared to 48 percent of adults in single-person households.