Income Inequality Hurting Restaurants

Want to know why restaurant traffic has been so flat for so long? One possible reason is rising income inequality.

By various measures, the income gap between the rich and poor in the US has been widening, and is wider than it is in other industrialized nations. According to the Pew Research Center, Americans in the upper fifth of the income bracket make 16.7 times those in the bottom fifth. That's a far greater gap than 10 other advanced countries Pew researched.

The recession has seemingly accelerated this inequality. Consumers in the upper-income brackets are doing well, while those at the bottom are struggling. And though employment appears to be improving, incomes aren't rising as fast and consumers are facing higher prices for things like housing and cable bills. 

Restaurants would clearly be affected by this, because they are especially sensitive to income shifts. The restaurant industry is highly competitive. Eateries don't just compete with themselves, they compete with c-stores and the home. When budgets get crunched, it's easy for consumers to cut out restaurant visits in favor of something that doesn't cost as much.

According to the Chicago-based market research firm NPD Group, restaurants have been feeling the impact of income inequality. 

NPD noted that visits over the past year to quick-service restaurants, which have a check average of about $5, have been flat, while visits to fine dining restaurants—where check averages exceed $40—have been up 3 percent.

The problem? Quick-service restaurants account for 80 percent of all restaurant traffic, while fine dining represents just 1 percent of industry traffic. So where the quick-serve sector goes, so goes the entire restaurant business. Restaurant traffic was flat over the year. 

Visitors to quick-serves tend to be lower income, while visitors to fine dining establishments have higher incomes—though, to be fair, at least part of the increase in traffic was due to business travel improvements, rather than more visits by rich people. 

And we still believe that the dwindling middle class is one culprit for problems in the casual dining sector, particularly at chains like Red Lobster and Ruby Tuesday. 

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