Despite rumblings of an approaching economic recovery from some economists, the foodservice industry has yet to see the light at the end of the tunnel.

During the summer, many foodservice associations, market researchers and restaurant operators themselves had higher hopes for the latter half of the year. Now that it’s here, it has hardly lived up to those expectations.

“While there were signs in recent months that the short-term outlook may be improving, the latest figures indicate that the restaurant industry’s recovery has yet to fully gain traction,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Washington, D.C.-based National Restaurant Association in a report on the association’s latest Restaurant Performance Index.

Restaurants still looking at a long road ahead

Courtesy National Restaurant Association

The National Restaurant Association's monthly Restaurant Performance Index 2002-present.

The monthly comprehensive index of restaurant activity showed an increase in restaurant activity in July, as well as more positive expectations from many operators, but started to head downward again in August. As of the end of September, which includes the latest available data, the industry as a whole had been in a state of contraction for 23 months.

“I would guess we’ll be behind retail a little in recovery,” said Tim York, president of Salinas, Calif.-based Markon Cooperative. “We didn’t really see a drop-off until November of last year, and then fell off a cliff.”

Recovery so far is slow and spotty, York said.

 Almost 70% of restaurant operators reported a same-store sales decline year-over-year in August, and 65% reported it in September, according to the National Restaurant Association. Just 28% of operators said they expect economic conditions to improve during the next six months.

From June-August, restaurant industry traffic dropped 3.6% year-over-year, and spending took a 1.6% hit, according to a report from market researcher The NPD Group. According to that report, mid-scale restaurants fared the worst, with a 5% drop in traffic, while quick-service restaurants saw a 3% decline.

“Quick-service is doing fine because everybody’s trading down, looking for those dollar meals,” said Lloyd Ligier, vice president of business development for Monterey, Calif.-based Pro*Act.

September wasn’t as hard on full service restaurants as August had been, according to a recent report from Technomic. Performance still declined, but only by 6.3%, compared with 12% the month before.

The survey, which included sales data from more than 2,700 national independent and chain restaurants, found a substantial variance in performance region by region. The Phoenix market, for example, reported a 7.6% year-over-year growth, while the Los Angeles market saw a 12.1% decline.

“Las Vegas, Reno, you talk about destination places, resort areas, they’re all down,” Ligier said. “Holiday travel this year, it’s all down.”

Across all markets, dinner had the largest decline at 6.8%, with lunch the least hit at 5.3%. The NPD report also reported a 6% drop in dinner traffic.

Produce in foodservice

The drop in business has actually meant a surge in some items for fresh produce suppliers.

“What we do see is operators are looking to save money,” York said. “We are seeing pre-cut items continuing to grow and becoming a larger and larger share.”

He said one might think operators would trade back to bulk, but that fresh-cut salads, onions, carrots and fruit all continue to grow.

“They’re predictable, stable pricing,” York said. “I think they’re being smart about it, and looking to pre-cut as a cost benefit.”

Ligier said the main thing he’s seen is that Pro*Act’s customers don’t want to sacrifice the quality of their food, although they are looking at cost more closely. They may come up with some smaller portions, but the quality of the food has to stay the same, Ligier said.

“Fresh produce is not like beef, where you can go from prime to choice,” Ligier said. “The difference between a good carton of lettuce and mediocre is yield. There’s no savings there, it’ll actually cost you more.”

Pro*Act works with its customers on ways they can save on certain items, Ligier said. For example, with romaine lettuce being priced high lately, the company suggests its customers increase the proportion of iceberg and other lettuces in its mixed salads, or to offer new menu items like wedge salads that don’t require romaine lettuce.

“So we try to suggest to people to stay away from products that prices might be up on,” Ligier said.

The drop in food prices at retail over the past year, while restaurant prices have continued to increase, is one of the reasons behind the numbers, Harry Balzer, chief industry analyst and vice president at NPD said in the report. High unemployment also took its toll, he said.

“Until that (unemployment) comes down, I don’t see that we’re going to get people into seats anytime soon,” Ligier said. “I think we’re going to have a pretty long go at this.”