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Slow Food: The Restaurant Biz Is Floundering

More bad news for the nation's diners, drive-thrus, and dives. Can they innovate their way out of this mess?

Slow Food: The Restaurant Biz Is Floundering

family at dinner table"Hey Mom, what's for dinner?"

"Whatever we have in the house."


According to the latest numbers coming from the restaurant industry, some version of this one-act play is taking place all over the country. Total traffic declined 2.6% this past spring versus the same quarter last year, the biggest decline in 28 years, says the NPD Group. And it's households with kids who are beating the hasty retreat from eating out. One-third of dining traffic is groups with children, and this marks the third quarter in a row families are cutting back. (Adult households with no kids were stable this spring.)

Even fast food, usually up in a recession, has fallen 2%—in fact, fast-foodie traffic has been Super Down Sized seven of the last nine months. The only player who's lovin' it is McDonald's, which Research Edge predicts will report 2.7% same-store sales growth in June (perhaps because that chain did not confuse size with success).

Casual dining (think Olive Garden or Chili's) is faring worse than fast food, down 4%, and midscale/family restaurants (industry jargon for joints like IHOP) are faring worst of all, down 6%. Breakfast is down an apocalyptic 9% at these restaurants—bad news for those new Hawaiian pancakes at IHOP or the Denny's Grand Slam—as many of their one-time patrons are likely trading down to fast food, where breakfast is down just 2%.

The only time of day that picked up traffic was afternoon snack at fast food and casual dining restaurants, which was up 1% in both. Perhaps Taco Bell’s fourthmeal is finally taking hold? And we suspect McD's snack wraps are a key driver in it holding strong against this mass exodus from the national food court.

empty mcdonald'sSo what does this mean for consumers? Most likely, more menu innovation to try to woo you in—Kentucky Grilled Chicken, anyone?—and more deals. Although look closely at that register receipt: Individual spending at restaurants is up 2%. That could be a "splurge effect," subtle price increases, or clever upselling, getting you to buy a drink or a cookie when you might not have done so otherwise. Either way, it hasn't been enough increase to offset the decline in traffic.

With still-rising unemployment and general budget-consciousness, spenders are opting to eat and entertain at home. A separate NPD report also forecasts that restaurant meals eaten in-home will rise 20% over the next decade, and when people get take-out, they don’t partake in spontaneous add-ons like appetizers, desserts, and drinks. All of which is making many restaurateurs say, "Check please!" About 4,000 restaurants have closed in this bleak climate.

Related: Who's Winning—and Losing—in the Food Recession
Why America Is Addicted to Olive Garden
Top 100 Restaurants Fare Better Than Expected in 2008