Is Family Bonding Ruining the Restaurant Sector?

Young families prefer traditional sit-down dinners to dining out. What does this mean for the restaurant industry, which sees slow growth ahead?

Jan 3, 2014 at 9:00AM

More than half of families with kids under the age of 18 -- 53% -- gather around the table at dinnertime as many as seven days a week, according to a recent Gallup poll. This throwback trend, reminiscent of Leave It to Beaver, has more or less held steady since the turn of the century. Is all of this family bonding leaving the restaurant industry starving for sales? Let's take a look. 

Dining In (U.S. Families with kids under 18)
  1997 2001 2005 2013
0-3 nights 16% 22% 20% 21%
4-5 nights 31% 29% 28% 28%
6-7 nights 52% 50% 52% 53%
Average at-home dinners per week: 5.4 5.1 5.1 5.1

*Source: Gallup 

In the U.S., the restaurant industry is comprised of more than half-a-million restaurants -- 550,000 or so across full-service and quick-service concepts and beyond -- that generate $400 billion-plus in annual revenue, according to First Research.  Darden Restaurants (NYSE:DRI), for example, is earmarking between $600 million and $650 million for capital expenditures in fiscal 2014 in an attempt to drive growth. Who should restaurants be targeting with menu innovation and unique restaurant concepts, exactly? The answer might surprise you. 

Restaurants are boomin'
While young families are opting for traditional sit-down dinners at home, older Americans are picking up the dining-out slack. That could be the saving grace for the restaurant industry, which according to NPD Group is only projected to grow at a pace of less than 1% per year through 2019.

The more young families choose to stay at home, the less noise there is on the restaurant scene and that is attracting the crowd who already raised their kids -- the baby boomers. Indeed, it's going to be older Americans who will allocate more of their budgets to dining out in 2014, according to Nation's Restaurant News.

They are the ones that are increasing their usage of restaurants, while those younger -- under 50 -- have pulled back dramatically and are still pulling back. -- NPD Group analyst Bonnie Riggs cited in Nation's Restaurant News

Baby boomers, still one of the largest generations in the U.S., weren't hit as hard by the economic recession and high unemployment rate as younger populations, NPD Group reports. Many of them are also still working and are choosing to spend and enjoy the peace and quiet in the process.  

What's cookin?
Meanwhile, grocery stores are benefiting from the dining-in crowd as sales of prepared meals continue to climb. Sales of prepared meals at food stores are rising at a double-digit rate for lunch and are also "growing for dinner at rates much higher than for the industry overall," according to Riggs in Nation's Restaurant News.

This of course will benefit grocery retailers including Whole Foods Market (NASDAQ:WFM), which offers a spread of nearly two dozen hot meals daily. Prepared foods and bakery accounted for nearly one-fifth of Whole Foods'  total sales in fiscal year 2013, up slightly from the previous year. Prepared foods, including hot meals, were projected to drive in $19.5 billion overall for grocery stores in 2012.

The results of the Gallup poll underscore that all tradition isn't lost in the U.S. Nonetheless, the millennial generation surpasses the size of the baby boomer group by 7%. If restaurants want to improve the growth picture, they're going to need to figure out a way to draw in this crowd even as these 20-somethings start families of their own.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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