Restaurants' Biggest Threat to Market Share Today? It's Not Other Restaurants

What's in customers' refrigerators is where the real battle begins.

April 2020 Danny Klein

Arguably, the most visible part of the massive $2 trillion relief bill is the direct check program. Individuals can expect to receive $1,200, with couples filing jointly getting $2,400. For every child 16 or under, the payment includes another $500. Payments taper off for people with incomes north of $75,000 and $150,000 for joint filers. Those who make $99,000 or more, and couples collecting $198,000-plus, are not included.

Still, restrictions aside, we’re talking nearly 90 percent of Americans open to full or partial payments, per the Tax Policy Center.

Will this matter to restaurants? The short answer is, probably not all that much.

“To some degree, help is on the way with stimulus checks from the CARES Act, but it's likely going to benefit food at home more than food away from home,” says Mark Brandau, group manager at Datassential.

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The insights company released its latest 1,000-consumer study Wednesday, labeled “Making Money Move.” The core of this report centered on how economic uncertainty is affecting people’s food choices and habits, and where all that leaves restaurants.

A lead question: “What are consumers most likely to do with government-allotted cash.”

“One in five people want to spend some of their windfall at restaurants, but twice as many say they need to put it toward household necessities like food, utilities, and rent,” Brandau says. “That reinforces something restaurants have been quick to recognize during this crisis: Their biggest competition right now isn't a restaurant across the street, it's what's in their customers' refrigerator. Anything restaurants can do to get them considered as an option for ‘stocking up’ on food could help them hang on to some share of consumers' food spending.”

In recent weeks, consumers have been directed by officials to embark on “two-week stock-up” journeys. This is an important point to weigh as purveyors.

There remains a lot of mixed data regarding how many people truly live paycheck to paycheck in this country. But the overall consensus is it’s a lot.

The First National Bank of Omaha said more than half (53 percent) of people don’t have an emergency fund that covers at least three months of expenses. Meanwhile, 49 percent of respondents said they expect to be living paycheck to paycheck in 2020. Close to 40 percent (37) said they had no plans to stash cash away for retirement,

The key here is that a two-week stock-up is not something many Americans can just file away without feeling some financial burn. It’s no surprise then, as Datassential’s study showed, that most people are looking at CARES Act cash as a way to replenish lost funds, not open the spending floodgates.

However, it does appear restaurants can expect some measure of infusion, especially among Boomers—a base more likely to treat themselves versus younger generations (this goes back to the savings conversation and where people are in their financial maturity). Gen Z, many of whom probably still live with parents and aren’t overwhelmed by living expenses, are more likely to invest or buy something nice for themselves, Datassential said.

Here’s a full breakdown of what people plan to do with the extra money:

Save it

Total: 62 percent
Gen Z: 56 percent
Millennials: 60 percent
Gen X: 63 percent
Boomers: 65 percent

Put it toward rent/mortgage and utilities

Total: 41 percent
Gen Z: 30 percent
Millennials: 43 percent
Gen X: 52 percent
Boomers: 31 percent

Use it to stock up on food at the grocery store

Total: 38 percent
Gen Z: 42 percent
Millennials: 40 percent
Gen X: 34 percent
Boomers: 40 percent

Pay down debt

Total: 36 percent
Gen Z: 29 percent
Millennials: 36 percent
Gen X: 44 percent
Boomers: 31 percent

Invest it

Total: 23 percent
Gen Z: 33 percent
Millennials: 25 percent
Gen X: 20 percent
Boomers: 22 percent

Give it as a gift/donate it

Total: 20 percent
Gen Z: 23 percent
Millennials: 21 percent
Gen X: 14 percent
Boomers: 22 percent

Spend on restaurants in my community

Total: 19 percent
Gen Z: 16 percent
Millennials: 20 percent
Boomers: 24 percent

Buy something I’ve wanted for a long time

Total: 19 percent
Gen Z: 35 percent
Millennials: 24 percent
Gen X: 15 percent
Boomers: 13 percent

Put it toward a repair or project I’ve been putting off

Total: 19 percent
Gen Z: 14 percent
Millennials: 18 percent
Gen X: 18 percent
Boomers: 23 percent

To Brandau’s competition point, Datassential also asked consumers what they would do if the extra money could only be spent on food. Nearly three-quarters (74 percent) said they would buy more groceries. For Boomers, it was even higher at 78 percent.

That leaves 26 percent choosing restaurants. It was greater among married respondents (29 percent) and people with kids (31 percent).

To put this in perspective, previous Datassential research on “share of stomach,” showed a break of 51 percent retail and 49 percent foodservice during non-pandemic times. So the 26 percent allocation, given all the roadblocks at hand (closed dining rooms, etc.), is actually relatively reasonable. Although that doesn’t make it any easier to navigate. Larger households would dedicate higher averages to restaurants, while Boomers would spend more on groceries, the study found.

This is yet another reason why family meal bundles are gaining quick momentum among restaurants during COVID-19. One thing to keep an eye on is how the value proposition shifts throughout the crisis and how it flows into large-scale orders. Given the supply and demand grocers are facing (sales last week skyrocketed 73 percent compared to the prior year, according to Black Box Intelligence), you can expect steady pricing without many deals. It opens the door for restaurants to inject value into the family-dining opportunity.

Beef ‘O’ Brady’s, in one example, is offering five different To-Go packs that all run under $40, The Build Your Own Tacos option, which includes 10 chicken tacos, cheese, lettuce, creamy poblano sauce, and chips and salsa, is just $18. Firebirds Wood Fired Grill has a Wood Grilled Chicken choice, complete with sweet treats and salad, for $29.95. That feeds a family of four.

When you consider the cost of stocking up for multiple weeks, these are pretty attractive outlets for a lot of folks who can’t afford to keep shelling out significant sums on groceries. And those who don’t want to make a trip, or dial up grocery delivery with added fees, for small, day-to-day orders needed to hold them over.

The battle for value is only going to accelerate in the coming days and weeks as unemployment surges and purse strings tighten for many Americas. For restaurants, the real jostle for share will be fought in the grocery aisles, not with the counterpart down the street.

Beef 'O' Brady's

Beef 'O' Brady's is tapping to family meals, with a value focus.

Food in the conversation

As past reports explored, social distancing is changing not only what people eat, but why they eat. And while the greatest emphasis remains an urgency to stock up, there has also been a transformation around meal preparation and planning. Customers are looking to this routine as therapy. It provides some tick of normalcy is an otherwise strange time.

Americans are not necessarily treating themselves or trying new things, though, and one in four have not changed their attitudes at all.

“An interesting thing that has persisted across the past few weeks of this research is just how much people are trying to hang on to their old routines with food, rather than forge new ones because we have to stay home more,” Brandau says. “This time around, we're seeing that in people's choices when they're shopping at the grocery store. There's not a lot of conscious trading up to premium products or trading down to generics; people are buying what's left on the shelves, and price and preference are second to availability.”

I feel like I need to buy more / stock up on foods (in case I can’t get them later): 34 percent
I spend more time on meal prep / baking / meal planning now: 26 percent
Eating / cooking has become a way to relieve boredom: 24 percent
Eating / cooking has become a way to relieve stress: 22 percent
I’m willing to spend more on foods I feel are safer (less risk of coronavirus): 19 percent
Food has become an area where I’m trying to save money / spend less: 17 percent
I order from restaurants more to help support local businesses: 17 percent
I eat to treat myself (since I can’t treat myself in other ways right now): 16 percent
I buy foods I wouldn’t normally buy (because of coronavirus): 15 percent
I order from restaurants more to treat myself: 10 percent
I’m spending more on fancier foods because I’m saving money from not going out: 8 percent

A way restaurants can look at this is to attack the “treat myself,” stereotype of the restaurant experience. Meal kits and deals that mirror cooking at home could be a key unlock. Panera Wednesday launched a grocery service that allows guests to tack on essentials, like milk and fruit, to orders.

Helping guests understand they can feed themselves, not just treat themselves, through restaurants is a smart stance to take. Firebirds is offering cut steaks and seasoned beef for customers to take home and grill themselves.

It's calling this, "The Butcher Shoppe," with messaging, "Our beef is all natural, growth-hormone free, Midwestern, corn and grain fed, aged 21 days for incredible taste and tenderness. USDA Inspected closely trimmed and cut fresh daily for cooking at home."

Setup as follows:

Ribeye (14 ounce): $14.95/ea.
Filet Mignon (7 ounce): $12.95/ea.
Center Cut Sirloin (7 ounce): $5.95/ea.; (12oz): $8.95/ea.
Burger (1/2 pound, includes brioche bun(s): $3.95/ea.

And all steaks come with Firebirds' special blend steak seasoning.

A lot of restaurants have tried things like this, such as Texas-based Whiskey Cake and its DIY cocktail kits.

If consumers are looking to food and food preparation as a way to pass quarantine hours and relieve stress, cater to that audience. A night of takeout doesn’t always need to be seen as an indulgence. If consumers understand they can supplement bi-weekly trips to the grocery store with restaurant service, they will tap into familiar and affordable options.

Olive Garden is offering a to-go centric version of its popular Buy One Take One deal by giving customers a meal for that night with another for tomorrow. Why not speak to the stock-up crazed masses by giving them what they desire—options they can store and stretch out across multiple days, and do so without breaking the bank?

As Datassential puts it, “Consumers are on a mission to find their ‘usuals,’ regardless of brand or price. Restaurants can be consumers’ refuge amid all the disruption by staying on their radar with frequent reminders that they are still open and are still offering what people seek.”

Firebirds Wood Fired Grill

Firebirds Wood Fired Grill smoked wings.

What factors drive consumer decisions to trade up or down on food?

Typically, this is a very different dilemma for restaurants. It would concern a barbell approach to menu design where you try to attract with value (or promotions) and then get guests to ladder up to more premium items. Or perhaps just attach things like drinks and appetizers to drive check higher.

Today, however, like most things, we’re talking about a dramatically different task.

Here’s what some consumers had to say.

“I trade up to a more premium version of foods that I generally bought as generic or store brands, “I also like to treat myself and my family to a brand of dessert that I would not usually buy. I have traded down to generic disinfectant wipes because they contain the same chemicals as more expensive products. Anything that is just as good as a name brand product, I will substitute a generic product when available.”

As many restaurants have found, now would be a good time to lower the threshold on delivery orders (or eliminate it), if at all possible.

“Based on what's actually available in the store on any day that I shop.”

Basically, people are buying whatever they can find. Restaurants are not seen as essential businesses during COVID-19; customers are almost entirely discretionary. Is there a way to change that perception? How about a “Coronavirus Survival Kit” during the week, complete with supplies and household items you have in back that aren’t moving? Things that also are vanishing off grocery shelves but you have plenty of in the restaurant.

“We find ourselves eating more treats and drinking more at home.”

Alcohol delivery (where possible) has found great success for a few reasons. But the main one probably speaks to this person’s point. Consumers are running through alcohol stores faster than they food ones. And nobody really wants to brave the grocery store twice a week to get more wine and beer. Also, stocking up on alcohol when you’re buying two weeks worth of food is a sure-fire way to skyrocket a bill.

“I make those choices because those are the only ones available. I would get the cheapest versions or the same as normal, but everyone wants cheaper things so what’s left is the more expensive versions of things.”

Value. Value. Value. Not to mention, availability. This is where suppliers are so critical to restaurants today.

“Eating at home exclusively now so buying more and better foods to prepare or already prepared.”

This touches on the Firebirds take-home and cook products. If people find themselves wanting to buy a couple of pounds of ground beef, but not wanting to make a massive grocery run, restaurants could step in.

“I make these decisions based off of how safe I feel they are for my family.”

Whether you’re a grocery store or a restaurant, the food-safety message is going to endure and need to be repeated for quite some time. Unless there’s a vaccine or treatment widely available, people are going to be concerned well past when officials reopen dining rooms.

Datassential asked customers “since the onset of social distancing for COVID-19, where have you cut back on spending?”

This isn’t a great data set for restaurants. So far, people are focused on the basics. Since the onset of social distancing, consumers have cut spending across many sectors where they now have limited access. Eating out, clothes shopping, personal care. Boomers appear most likely to scale back food from restaurants, but as noted in other reports, they’re also most excited to get back to dining in once concepts reopen.

Food from restaurants: 57 percent
Clothing: 38 percent
Gasoline: 37 percent
Personal care and grooming: 36 percent
Subscription services in general: 24 percent
Coffee (habitual coffee shop purchases): 23 percent
Alcoholic beverages: 23 percent
Toys for my children or pets: 21 percent
Charitable giving: 20 percent
Food from the grocery store: 19 percent

Just goes to show you how critical a frictionless purchasing journey is. COVID-19 is one of the greatest barriers the non-essential retail world has ever encountered.

Some other numbers

With most states now mandating the transition to delivery and takeout only (NPD Group pegged the number of restaurants under restrictions at nearly 100 percent), consumer avoidance of dining at restaurants remains steady. Steady and high. Concern is also starting to creep up among groups that were less worried in the past, like Gen Z and singles. Baby Boomers are also showing significant jumps.

Definitely avoiding eating out (as of April 3)