The shrinking middle class hurts the casual-dining segment, but higher-earning demographics feed growth in fine dining.
In the South, we’d say the young woman waiting tables was blessed with the gift of gab.
It was March 20, the NCAA Men’s Basketball Tournament dominated TV screens in every sports bar, and at one Buffalo Brothers’ location the personable waitress was not missing a single service op as she chatted up tables, delivered orders, and replenished beverages before any glass went dry.
We take our basketball pretty serious here along Tobacco Road, and the start of March Madness is cause for some equally serious celebrating—even on a weeknight. Many in the crowd were going to work the next morning, but it was a school night in the very literal sense for our waitress, who mentioned in passing, “Oh I just do this at night; I teach school all day.”
What a wake-up call to America’s struggling middle class: She was working two jobs despite having a profession that once would have provided a comfortable middle-class lifestyle.
A Pew Research Center survey recently concluded the middle class has shrunk, and not because things are improving. The middle class dropped from 53 percent of Americans in 2008 to 44 percent this year, while the lower or lower-middle classes rose 15 points in the same period, to 40 percent this year.
The report also noted growing inequality in income distribution on both ends of the earnings scale. Since the Great Recession, the median household income dropped 8 percent to $51,017 in 2012, the same as in 1995, while average incomes in the highest quintile barely hiccupped, dipping just 2 percent.
This bodes well for upscale restaurants that cater to a more affluent demographic. The NPD Group reported visits to fine-dining restaurants were up 5 percent in 2013, and Ruth’s Chris Steak House saw comp-store sales rise 5.3 percent last year, while its average unit volume grew from $4.67 million to $4.9 million.
In the family-dining segment, where checks average under $12, sales held flat or bumped up slightly last year—witnessed by IHOP, where same-restaurant sales rose 2.4 percent. But in the casual-dining arena, which targets middle-class Americans and has check averages of $12 to $50, sales declined, albeit not as dramatically as the incomes of its core demographic. For instance, Applebee’s same-restaurant sales decreased 0.3 percent last year, and the 2014 forecast is grim: negative 2 percent to a 1 percent increase.
However, the income story was much rosier. DineEquity, parent company of IHOP and Applebee’s, enjoyed net income of $72 million in 2013, on the heels of $127.7 million the previous year.
Efficient processes and smart management can increase earnings even when consumer spending is lean. And there’s another silver-lining message for full-service restaurants: Hard-working, ambitious professionals who can’t make ends meet are bringing stellar work ethics into the labor pool as viable part-time employees, just like the waitress described.