Positive outlook for 2015 for U.S., Louisiana restaurant industry

The restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, one million locations and 14 million employees - according to the National Restaurant Association's (NRA) 2015 Restaurant Industry Forecast released today.

The good news: sales growth is expected to accelerate and represent the sixth consecutive year of real (inflation-adjusted) sales growth for the industry.

The bad news: growth rates are still modest in historical terms, as the economy continues its struggle to reach normalcy after the Great Recession, begging the question “Is this the new normal?”

It might just be. America’s restaurants are expected to post record sales and continue to be a leading job creator in 2015, but the operating environment will remain challenging due to the slower-than-normal economic recovery after a recession, as well as rising costs.

“Population growth and Americans’ continued desire for convenience and dining out continues to fuel industry growth,” said Hudson Riehle, senior vice president of research for the NRA. “Certain components of the business climate remain a challenge, however, as regional variability in employment levels and disposable income gains still put a damper on the overall environment.”

“Total restaurant industry sales are expected to advance at a 3.8 percent rate this year. That’s lower than the compound, pre-recession annual sales growth rate the industry experienced, but still a positive sign that the industry is in a better place now than six years ago,” Riehle said.

Sales in the tableservice segment are expected to reach $220 billion in 2015, a 2.9 percent gain over 2014 sales, while sales in the quickservice/fast casual segment are projected to grow by 4.3 percent and reach $201 billion.

Looking at the state level, the top five states for restaurant sales growth in 2015 are Arizona, Florida, North Dakota, Texas, and Colorado. Louisiana's projected sales revenue for 2015 is up to $7.3 billion, 3.6 percent over 2014 with $7 billion. 

Job gains expected in 2015 and over next decade
As sales growth improves in 2015, restaurant industry employment will perform even better. In fact, this will be the 16th straight year in which restaurant industry employment growth will outpace overall employment growth.

Restaurants will employ 14 million individuals this year as the nation’s second-largest private sector employer, representing one in 10 working Americans. In Louisiana this year, total restaurant industry employment is projected to exceed 203,000 and reach nearly 220,000 by 2025, an additional 16,600 new positions. 

Eating and drinking places – the largest subcategory of the foodservice industry – are projected to add jobs at a 3.2 percent rate in 2015, a full percentage point above the projected 2.2 percent gain in total U.S. employment.

In addition, the NRA projects that restaurant industry employment will reach 15.7 million by 2025, an increase of 1.7 million positions during the 10-year period. Over that decade, the top five states for restaurant employment growth are Arizona, Florida, Texas, Georgia, and Utah. 

Challenges include food costs, increased labor competition
While the restaurant industry is expected to grow this year, operators will continue to face a range of challenges, according to the NRA’s forecast. The top challenges cited by restaurateurs include food costs, building and maintaining sales volume, the economy, and recruiting and retaining employees.

Food costs continue to put pressure on many restaurateurs’ bottom lines.  Average wholesale food prices jumped more than 5 percent in 2014, which represented the fifth consecutive annual increase. During the last five years, average wholesale food prices rose roughly 25 percent.  Operators can expect to get pricing relief on several of the major commodities in 2015, including dairy and pork.

Restaurants are expected to spend $253.6 billion on food-and-drink purchases this year.

As food costs are rising, small measures can help ease pressure

The National Restaurant Association’ s Manage My Restaurant has articles in categories such as Marketing and Sales, Workforce Engagement, Food and Nutrition and Operations. Visit Manage My Restaurant here for this and other helpful tips.

About one-third of sales in a typical restaurant goes to food and beverage purchases, making cost management in the kitchen critically important to maintaining profitability.

After jumping more than 8 percent in 2011 – the strongest annual increase in more than three decades – wholesale food price growth has slowed, but prices remain elevated. And overall, average wholesale food prices have jumped nearly 30 percent in the past six years.

Meanwhile, menu prices have not risen at nearly the same pace, putting additional pressure on restaurants’ bottom lines. In fact, food costs are cited as the top challenge by more than one-quarter of restaurant operators this year.

In the What’s Hot in 2013 survey, the NRA asked professional chefs how to best handle the pressure of elevated food costs. ”About one-third said that changing menus would help do so, while one-quarter said that adjusting plate composition could help ease the pressure. Another quarter said that they explore new sourcing options and suppliers to offset elevated food prices. Only 4 percent said that raising menu prices is the way to go.

While restaurateurs can’t control the commodity market, they can control which ingredients to use and how to use them in their own kitchens. Some ways to alleviate food cost pressure are:

• Closely monitor what food is left on consumers’ plates. If your guests are consistently leaving the same items – like salad garnish, french fries or salsa – you can serve less of it or eliminate it altogether. Not only will this save on costs, but it also helps the environment by cutting back on waste.
• If you don’t want to change a core menu item completely, consider adjusting parts of it. For example, if one type of lettuce is becoming more expensive, substitute a different type. Or, if the price of milled rice is spiking, use other grains.
• Serve free items only upon request rather than having them on counters or automatically served by staff – for example, condiments, bread, crackers, chips and salsa.
• Wholesale beef prices increased at double-digit rates between 2009 and 2012, and are still rising. When planning new menu items, explore underused cuts like shoulder, cheeks and skirt steak, as these are often more inexpensive, but yet full of flavor.
• Use fresh produce that is in season, as supplies are more plentiful and prices typically lower. Consumers are also attracted to freshness of ingredients, so this can be a marketing opportunity as well.

What's driving up pork prices?

The ongoing spread of pig virus throughout North America and Asia is expected to affect U.S. swine production and cause pork prices to keep rising through the rest of the year, a commodities analyst for the restaurant industry said.

John Barone, president and founder of New Jersey-based MarketVision Inc., said restaurateurs, especially small companies and independents, will feel the brunt of the economic pain resulting from the outbreak of porcine epidemic diarrhea, or PEDv, which has up to a 100-percent mortality rate in piglets and no reliable cure.

“This is going to cause substantial pain,” Barone said. “Of course it will depend on how these restaurant companies are contracted in.” He said companies that have contracted for the year for their bacon, sausage and rib products might not be affected at all. "But those of them that are not will get hit with much higher food costs. I can guarantee that the average restaurant on the street that has not locked in its supply contract is already suffering from the price increases.”

Barone said restaurants that specialize in breakfast foods or feature pork ribs and pork-based hot dogs, like barbecue joints and sports concessionaires, would feel the biggest pinch because of the disease, which tends to attack entire herds of piglets as soon as they are born.

“Sandwich chains will experience a little more flexibility because they can offer pork alternatives, like turkey and chicken products,” he said. “But, obviously, a rib chain will be affected as will stadium foodservice concessionaires. And then there are the burger chains. They’re experiencing a double whammy since beef and bacon prices are skyrocketing. You can make it a triple if you throw cheese in there, too. They’re getting hit from every side.”

According to published reports, Donnie Smith, president and CEO of Tyson Foods, said hog supplies are expected to decrease by 4 percent or 5 percent during the company’s fiscal year 2014 due to the outbreak. He told shareholders during a May 5 earnings call that herd losses related to PEDv are the main reason for the expected decrease in production and that supplies would be further reduced from June until August, but could ease by October.

Barone said PEDv takes a big toll because “when a sow is infected, it doesn’t die, but, instead, passes it along to her entire litter upon giving birth. That could mean that up to 10 piglets in each litter would be lost, and that is an exponential loss of future pig supply.”

Barone added that if the problem continues for a long period of time, other protein supplies could see some effect, too.

“Restaurant operators are already dealing with extremely high beef prices, and chicken prices also are on the rise,” he said. “If this continues and people look to switch out to protein substitutes, the demand will lead to even higher prices.”

“It’s going to be a difficult summer for the restaurant industry.”