Nation’s Restaurant News asked some of the industry’s top trend-watchers to discuss what they expect in the year ahead. Here are their top predictions:
Hudson Riehle, senior vice president, research, National Restaurant Association
There’s no economic rebound to prosperity, but it will continue to be a better environment than it was in 2008, 2009 and 2010.
Restaurants will benefit from pent-up demand. Two out of five American adults said in a recent survey that they are not using restaurants as often as they would like. Even modest employment growth should boost confidence and cash on hand, encouraging consumers to return to restaurants.
Food costs will remain a huge challenge, with wholesale food price inflation running at 8 percent — the highest it’s been in three decades. Operators won’t be able to pass on high input costs on a one-to-one basis, so the focus will remain on driving out costs while hopefully growing sales.
Nancy Kruse, president, The Kruse Company
The three 'zations will grow in importance.
• “Premiumization” is now a basic diner expectation, given the proliferation of upgraded, enhanced, or higher-end products at modest prices. Examples: T.G.I. Friday's new Langostino Lobster-topped entrées or Arby's medium-rare Angus beef sandwiches.
• “Customization,” which is the have-it-your-way notion brought into the 21st century by concepts like Chipotle’s ShopHouse Southeast Asian Kitchen and Pizza Inn’s Pie Five Pizza Company.
• “Miniaturization,” or the continued growth of small plates, snacks and downsized portion options, which have been driven by price sensitivity, consumer interest in sampling, grazing or sharing, and health concerns.
More chains will return to the earth and emphasize real, fresh or local foods to the maximum extent that they can, given the constraints of their systems. For example, McDonald's new ad campaign emphasizes farmers and ranchers. Similar efforts have been seen from Culver's, Wendy's and Domino's.
Daypart disintegration will accelerate as snacks and off-hours options like “linner” – a daypart between lunch and dinner – make inroads at the expense of conventional meal periods. Drivers behind that trend include 24/7 lifestyles, declines in conventional 9-to-5 work habits, interest in less expensive options and the growth of the Millennial generation. For example, the super-hot Publican in Chicago has a formalized "afternoon menu" starting at 3:30 p.m.
Bonnie Riggs, restaurant analyst, The NPD Group
Fast casual will remain hot. The segment’s year-to-year traffic rose 6 percent for the year ended Oct. 31, and more operators are looking to capitalize on its appeal. With quick-service brands like McDonald’s upgrading menu items and decors and casual-dining chains introducing fast-casual variants.
Better-for-you foods are in, as consumers trade French fries and soft drinks for items deemed more healthful, such as Subway’s Fresh Fit offerings and those with a health halo, such as Carl’s Jr.’s turkey burger line.
Darren Tristano, executive vice president, Technomic Inc.
Consumers hesitant to spend want twists on the familiar, such as comfort foods with gourmet, ethnic artisanal or wood-fired flare, and innovative sandwiches, wraps, pizza and pasta.
Commodity costs will drive rustic fare made in-house as operators stop buying value-added items in favor of cheaper cuts, beans, grains and produce that require more back-of-house prep to make into honest, home-style food.
Seasonal and local sourcing will continue to grow, driven by a less-is-more culinary trend and the need for a more transparent and efficient supply chain.
John Barone, president, Marketvision
Choice beef prices will rise. Drought in the southern plains has reduced cattle herds and caused a lot of feeder cattle to be marketed at lower weights, resulting in less overall beef, even less choice-grade beef and higher prices in 2012. This situation may not improve much in 2013.
Another year of high fuel prices. Diesel prices jumped 28.7 percent to an average $3.85 per gallon nationally in 2011, and look to be similar in 2012. The logistics of managing freight into distribution centers, and then on to restaurants will be one of the biggest challenges for supply chain professionals in 2012.
Lower grain prices. Record-high grain prices led to more planted acres globally, and those added supplies will dampen U.S. export prospects. The result will be lower year-over-year corn and wheat prices, albeit these will be coming down modestly from record-high levels.
Larry Miller, analyst, RBC Capital Markets LLC
There’s more risk than reward in restaurant stocks in 2012, as food costs remain high. If sales slow while costs are high, companies will experience multiple compression — and miss their earnings-per-share estimates — since average checks are already under pressure from discounting and soft traffic.
Late 2012 could benefit from the presidential election, especially if same-store sales can stay in the 2-percent to 2.5-percent range through the first few quarters. On top of electorate optimism, easing year-over-year food cost comparisons could lift stocks. In the meantime though, consumers seem to be tapped out and will keep their spending in check.
Stock picks: Yum! Brands Inc. because emerging markets such as China, India and Africa still show promise; Starbucks Corp. could benefit from favorable coffee costs later in the year and the full contribution of K-cup sales; and Jack in the Box Inc. is poised to benefit from its refranchising efforts, higher margins and revved-up growth at Qdoba.
Steve Caldeira, president and chief executive, International Franchise Association
Franchising is expected to grow in 2012, with, franchised quick-service restaurant sales increasing an expected 4.4 percent and franchised full-service restaurant sales expected to increase 4.2 percent in 2012. Both projections are lower than the 5-percent average growth anticipated in 10 franchise segments, based on a survey conducted for the IFA by the IHS Global Insight consultancy. In addition, the number of franchised quick-service restaurants is expected to grow 2.6 percent, to 151,347 units, and the number of franchised full-service restaurants is projected to grow 2.1 percent, to 36,095 units.
Access to capital will remain the No. 1 issue for franchising in 2012. While there’s been a bit of a thaw for both big and small businesses, there is a long way to go.
Tax reform will be a huge issue in the coming year as uncertainty surrounding tax issues and health care reform inhibit the ability to make informed business decisions.