Consumer Spotlight: Demand for Dining and the Restaurant Industry Outlook

While the Covid-19 pandemic disrupted many sectors of the economy, few suffered larger losses than the restaurant industry. Prior to the pandemic, consumer spending on dining grew steadily before peaking at $485 billion (in 2023 dollars). Pandemic-induced factors including social distancing and the shift to remote work caused a 30% decline in consumer demand during the pandemic. Three years later in 2023, consumer expenditures still remained 8% below pre-pandemic levels. As the industry—relying on both consumer and corporate expenditures—strives for recovery, shifting demographic trends and macroeconomic uncertainties present important considerations for all stakeholders.

Household expenditure data shows that the 30-65 age group largely drives the consumer dining market. This demographic segment comprises 62% of households, but it contributes to around 70% of total expenditures. This disproportionate spending can be attributed to larger household sizes and higher income levels during these life stages. Shifting age demographics indicate a sharp increase in the 65+ age group as the Baby Boomer generation retires. If the demand from younger households fails to rebound from pandemic lows, the industry could face a secular slowdown.

Post-pandemic trends highlight a universal decline in consumers across all age groups, with no demographic segment returning to pre-pandemic levels. Notably, the under-30 age group has stagnated at pandemic-era lows, while the 45-65 age group remains similarly subdued. The 30-45 and 65+ age groups, however, have trended upwards from pre-pandemic lows, indicating varied recovery trajectories.

Despite consumer expenditures lagging, restaurant sales growth has remained robust, driven in part by rising corporate spending. A recent study noted a surge in business meal expenses in 2022, with sustained high levels into 2023. While corporate spending may bolster industry growth, an increasing reliance on business expenditures introduces heightened sensitivity to economic cycles.

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The persistent underperformance of consumer spending on dining out, relative to pre-pandemic levels, coupled with demographic shifts and stagnation in the under-30 age group, indicates a potential long-term decline in consumer demand. Furthermore, the industry's growing dependence on corporate expenditures could amplify risks associated with macroeconomic fluctuations.

For both investors and business executives, these trends underscore the importance of strategic positioning and market analysis. As the dining industry navigates the post-pandemic economy, investment opportunities may arise in segments demonstrating resilience or innovative adaptation to changing consumer behaviors. Monitoring demographic shifts and corporate spending patterns will be crucial for making informed investment decisions and capitalizing on emerging growth prospects.