High Costs May Be Driving Restaurant Customers to Pre-Packaged Meals

CHICAGO (Blue MauMau) – Consumers are developing new food-spending habits that are reshaping the restaurant industry. Those changes may continue after the economy improves say speakers at a major industry conference hosted Wednesday by food service consultants Technomic.

One hot topic at the conference has been that operators are likely to continue being squeezed by higher food input costs across many product categories for some time to come. And restaurants are finding it increasingly difficult to avoid raising menu prices.

Eddie Webster, a Fairhope, Alabama franchise owner of four Moe's Southwest Grills, agrees. “I know many of my friends who have fine, white tablecloth restaurants that are not doing so well,” he observes.

“Higher menu prices have definitely had an impact,” says Darren Tristano, Technomic Executive Vice President, “although consumers don’t appear to blame restaurants for raising prices.”

Although Webster has managed to keep menu prices down at his Moe’s restaurants, he has simultaneously had to chew up his profits. “Over the last 18 months I have had a continuous rise in food costs laced with energy surcharges for everything that is delivered to the back door, which has caused us to make less on the gross to the front door.”

The big concern now is fuel and petroleum-derived products such as plastic. “Actual increases in food costs have flattened out, but there are now energy surcharges on everybody who comes to the store to do service and maintenance. It’s not just the food costs, but it is the paper and the plastic costs that has really hit us. Some of our plastic products that we buy have more than doubled over the past year.”

Webster says his franchisor has been vigilant in trying to keep costs down. “Moe’s has been constantly negotiating prices and looking at other vendors. But of course it is such an across-the-board increase in prices hitting owners, driven by rising oil prices mostly.”

Gas Prices Up, Prep Meals Trending Up Too

Food services consultant Tristano thinks that the high cost of gas is driving customers to at-home meals. “Our research indicates that consumers understand that restaurants’ food costs have gone up. Nevertheless the vast majority of consumers say they will eat out less often at full-service restaurants and replace these occasions with meals prepared and eaten at home.” Tristano explained that these at-home meals increasingly include meal solutions sourced from supermarkets and other food retailers, a growing competitive threat to chain restaurants.

Meal preparation is a new-comer to franchising. Retailers provide pre-packaged meals purchased by servings, typically $4 per person per serving.

Howard Rosenthal, director of franchise operations for Mr. Food No-Fuss Meals, agrees that gas is driving consumer behavior. “Fuel is huge today. We hear customers say I’d rather come to one place and buy everything. In one drive they can get one to twenty nights of meals that are ready.”

Headquartered in Florida, Mr. Food has 12 franchised units in the southeast United States. Rosenthal thinks that consumers are really watching their pocketbook. “We are seeing people buying smaller orders and coming in more frequently. They don’t want to put $200 in a visit on their charge card, but rather $100.”

Technomic estimates that retail grocery operators continue to improve their effectiveness in preparing meal solutions that resonate with consumers’ hot buttons, including quality, convenience, freshness and most importantly, an attractive price point.

Leslie Hanna, president of the International Association of Meal Prep Businesses, an association of small meal prep retailers,  she agrees that “the meal prep industry is uniquely positioned to capture these customers.”

Ms. Hanna, who is also the owner of her own meal prep retail store, MealTime in Duluth, Minnesota , thinks it doesn't look like customers are rushing from restaurants to meal preparation retailers. “I don’t think we are seeing them quite yet,” she says. “Right now we are seeing our current customers using our service less and going back to cooking more basic, budget-friendly meals at home from scratch."

Despite the economic trends pushing customers to meal prep, Tristano sounds a cry of warning when it comes to the new sector of meal prep franchise chains trying to take advantage of the shift in consumer behavior; namely, competitive venues - the big guys, such as supermarket chains - are already stepping in.

Tristano told Blue MauMau, "Meal prep franchises were of good value to consumers when prepared at the facility but prep meal franchises grew so rapidly over the past few years that it looked like a fad. We didn't think it would be a long-term trend because the franchisors so quickly saturated the market that we expected a weeding out. One particular threat to the prep meal franchise chains are supermarkets, which can and are easily adding these products.  We also anticipate catering to step more into this market."