(June 20) NEW YORK — For some time, the claim has rung out that these are tough times for the U.S. restaurant industry.

Now there are numbers to back up that assertion.

According to a recent study, the foodservice sector is facing its biggest slump since the late 1970s.

Business in restaurants declined 2% from December through February, the third straight quarterly loss for the restaurant industry, according to the NPD Group Inc., a market research firm based in New York.

“We’ve seen seven months of decline in an industry that has experienced growth for much of the ’90s,” Harry Balzer, vice president of the research company, said in a news release. “For every restaurant that opens, one is closing. For every restaurant seeing good performance, one is seeing poor performance. It’s not like the rising tide of the ’90s.”

The string of three losing quarters in a row is the first such streak on record, NPD reported.

But NPD research also indicated that there is hope for improvement.

The group also reported that the restaurant industry is starting to show signs of improvement, reporting that people are growing less cautious about eating out than they were before the war with Iraq.

Fourteen percent of respondents in a survey that NPD released in early June say that they plan to spend more at full-service restaurants during the summer. Twelve percent of consumers say they would spend more on fast food.


Economic worries do persist, however. Forty-nine percent of consumers said they would spend about the same at full service restaurants and 37% plan to spend less.

Anxiety over economic issues may be at the heart of NPD’s other recent findings.

The decline in December through February followed a 2% downturn in restaurant business nationwide in September-November. Business was off by 1% in June-August 2002.

For produce suppliers, many of whom have turned to the foodservice sector to compensate for business lost to retail consolidation in the past several years, a restaurant slump means harder work.

“I think that basically we’re trying to do what we’ve been doing the last several years, which is to keep restaurants in position to offer new items, some of the value-added processing as well as some of the heirloom varieties of vegetables and fruits,” said Dean Simon, president of Los Angeles-based Pro*Act Specialties, which supplies specialty products to members of the Pro*Act foodservice distribution network.

But, Simon added, restaurant operators have to be more innovative during tough times.

“They’re always striving to keep menus interesting, new and exciting, trying to drive sales through specials,” he said. “A lot of restaurants are trying to do seasonal contracting on specialty items that in years past they haven’t aggressively gone after.”


At some restaurants, value has become a watchword. Some eateries are lowering prices and chefs are factoring price, as well as quality, into their purchases, NPD said.

“Whenever you run into a soft market, everybody is going to seek two things,” Simon said. “They’ll look for the most interesting products and work with them in the most cost-effective manner. A great deal of margin can be developed through specials.”

But chefs can compromise on quality only so much said Simon, himself a former chef.

“As a chef, personally, I can tell you that it often costs you more to work with inferior product,” he said. “Your customers still are going to expect the same high quality.”

Manny Costa, president of Costa Fruit & Produce Co., Boston, a Pro*Act member, said strategies that restaurants choose likely would vary.

“I guess you’d have to go segment to segment within the whole restaurant industry,” he said. “Still, obviously, the white-tablecloth establishments are wide open for any new ideas, where cost is a major factor (elsewhere). It’s more the flavor of the product. But common sense tells you that there’s the finer eye toward the costs per serving of any product that they’re serving, for most segments of the industry, including the noncommercial.”


The business slowdown has hit restaurants at all levels but not with equal impact. Fast-food operations — about 74% of all restaurant business in the U.S. — saw traffic shrink by 2% from December through February, NPD said. That followed drops of 1% in each of the previous two quarters.

At casual-dining chains, which account for 12% of restaurant traffic, business was off 1% in the December-February quarter, after a break-even performance in September-November and a 1% drop in the previous quarter.

Times have been hardest on the so-called “midscale” restaurants, primarily independently owned operations that comprise about 14% of the trade. There, business fell 6%, 7% and 4%, respectively, in the past three quarters.

Simon said innovative restaurateurs would survive, perhaps even thrive.

“There’s more pressure on chefs to perform at a higher level and perform at a budgetary standpoint,” he said. “There’s two ways. You can increase sales and control the margin. When sales are soft, they have to concentrate on the margin.”

For its part, the Washington-based National Restaurant Association is attempting to stem concerns about obesity by pushing the idea of healthy eating in restaurants.

The association announced June 9 that it had begun to distribute consumer educational materials for its to promote moderation and physical activity.

“We believe that (the program) is one of many sensible solutions to the complex issue of overweight and obesity among some Americans, addressed through a positive, joint relationship between industry and government,” Steven Anderson, the association’s president and chief executive officer, said in a news release.

A brochure, “Three Steps to a Healthy Lifestyle,” is available at the association’s Web site, www.restaurant.org. Tray liners and table tents are also available for restaurateurs.