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Lunch Trends in the U.S. Foodservice Market

October 1, 2010


To help foodservice industry participants face challenges unique to the lunch daypart,
Lunch Trends in the U.S. Foodservice Market provides insight on the lunch goer’s
decision-making process. By putting a finger to the lunch goer’s pulse, we provide
insight on two keys factors to lunch-time foodservice: how and why the consumer
decided on a specific restaurant from which to obtain lunch, and how and why that
consumer decides what to order from the menu.

Introductory findings include the following: When deciding on a restaurant from which to
obtain lunch, 37% of lunch goers cite a favorite menu item as influencing their choice,
and some 36% cite a different menu item than what they have at home. But low cost
has become the industry mantra—and is also important to many consumers. About 35%
cite a meal priced under $5 as an influence when selecting a restaurant, and 31% say
that a meal priced under $10 has influenced them to select a restaurant for lunch.

With proprietary consumer research laying the foundation, this report weaves
consultative insight with analysis of lunchtime limited-time offer and value trends;
current lunchtime guest check averages; planned restaurant spending; and guest traffic
patterns at selected brands. We also shine a light on leading lunch-centric brands, by
outlining menu strategies and related innovations, and then tying them to demographic
analysis of the brand users’ diet, health, and food attitudes; and usage patterns. The
report also trends lunch daypart sales by demographics such as income, age, region,
and race/ethnicity. Analysis also focuses on consumers particularly important to the
lunch daypart, such as the full-time and part-time employed.

While the restaurant industry is the primary focus of the report, consumer survey
assessment incorporates prepared foods at grocery stores and convenience stores, and
trend analysis incorporates both restaurants and food retail.



Additional Information

Market Insights: A Selection From The Report
Restaurant usage and usage frequency

As part of our proprietary June 2010 consumer survey, Packaged Facts measured
restaurant usage and mean usage frequency by restaurant type.

As expected, mean use of “fast food/quick service restaurants” was substantially higher
than any other restaurant type—about two and a half times higher than the runner-up
causal restaurants—a testament to fast food’s strong value, low-cost, and convenience
propositions.

Consumers report an aggregate 11.2 visits in the past month to the listed restaurant
types: fast food/quick-service visits represent under half (45%) of all visits, followed by
casual restaurants (18%), family restaurants (15%) and coffeehouses (14%).

Lunch day part accounts for about one-third of all usage

About 34% of diners participating in Packaged Facts’ February 2010 proprietary
consumer survey said they got “lunch” the “last time” they got food and/or drink from a
restaurant, while 56% got “dinner/evening meal” and only 8% got “breakfast.”

Extreme affordability weighs down fast food/QSR

As we discussed in The U.S. Foodservice Landscape: Industry and Consumer Trends,
Momentum and Migration (Packaged Facts, May 2010), fast food/QSR operators are
playing the “price = value” card for everything its worth. By pushing the envelope with $1
deals, they do risk enabling a pool of “extreme affordability” customers hooked on
products that also suck the life out of guest check averages.

The industry risks significant damage to margins and sales in the process, especially in
light of our theory that trade down to QSR from more expensive restaurant alternatives
has slowed considerably as the economy has stabilized. Moreover, without a way to pull
new traffic into its restaurants, brand growth now relies on share taking, so the industry
essentially risks cannibalizing itself.

In the News



                Restaurant Lunch Spending to Rebound in 2011:
 Strategies Targeting Cost and Health-Conscious Customers Sustain Industry in
                                  the Interim

New York, September 8, 2010 — U.S. consumer spending on lunch served in
restaurants is forecast to rebound 2% in 2011 to reach $114 billion following two years
of recession-related declines, according to Lunch Trends in the U.S. Foodservice
Market by research publisher Packaged Facts. After rising to $119 billion in 2008, lunch
daypart sales declined 4% in 2009, and sales are estimated to fall another 3% in 2010
to $112 billion.

“This has been a very tough climate for lunch foodservice and its counterparts, and that
won’t change overnight although change is coming,” says Don Montuori, publisher of
Packaged Facts. “Growth in the lunch daypart still faces a few near-term challenges
including the impact of unemployment on work-driven restaurant routines, bargain-
minded consumers who weigh the cost of a bagged lunch against the indulgence of
eating out, and an industry environment in which players are chasing foot traffic at the
expense of guest check through the extreme push of value meal deals.”

Ironically, by pushing the envelope with $1 deals, fast food operators are enabling a
pool of “extreme affordability” customers hooked on products that have indeed
undermined guest check averages yet have also helped sustain the industry.
Respondents to Packaged Facts’ proprietary survey reveal that interest in lunchtime
meals priced under $5 and under $10 is stable across household income brackets,
suggesting price sensitivity among a large segment of diners regardless of their
personal wages. Respondents aged 18-24 are 60% more likely than average to choose
a restaurant because it offers meals for under $3.

The nigh ubiquitous limited time offer—with its allure to attract new visits and test
longer-term menu strategies—and the addition of bundling components could allow
restaurants to build up guest check sizes without sacrificing foot traffic, according to the
report. Notable examples include Taco Bell’s $2 Meal Deal, which by offering three
items for $2 is intended as a twist on the more common 1:1 ratio of items per dollar as
featured in Jack in the Box’s “Pick 3 for $3” customizable LTO value meal. Additionally,
strategies by the likes of Denny’s and Bob Evan’s to place everyday value for quality
food at the forefront of their branding initiatives makes a great deal of sense in the
family restaurant sector, where value for the money has always been a selling point.

Ingredients are almost as important as price for many consumers when dining out, and
food operators confirm guests’ growing interest in better-for-you choices. Customers
seek foods offering positive health benefits (such as fiber and whole grains) and menu
items featuring more vegetables or fruit but less meat. Packaged Facts’ research
suggests that students are more likely than average to be influenced by healthful lunch
foodservice decisions, while both men and women are likely to choose a restaurant that
offers smaller portion sizes to reduce cost and control calories.

Lunch Trends in the U.S. Foodservice Market provides insight and analysis on
recession-driven changes in the restaurant industry, focusing on related consumer
attitudes and behaviors shaping the industry today and positioning the industry
tomorrow. The report assesses key industry and consumer trends as applied to
restaurant segments and restaurant brands; analysis is generally framed in terms of
current trend momentum and 12-month outlook. With proprietary consumer research
laying the foundation, this report also weaves consultative insight with analysis of
lunchtime limited-time offer and value trends; current lunchtime guest check averages;
planned restaurant spending; and guest traffic patterns at selected brands.

About Packaged Facts - Packaged Facts, a division of MarketResearch.com,
publishes market intelligence on a wide range of consumer market topics, including
consumer goods and retailing, foods and beverages, demographics, pet products and
services, and financial products. Packaged Facts also offers a full range of custom
research services.



Table of Contents

Chapter 1: Executive Summary
Scope and Methodology
      Scope
      Methodology
Macroeconomic Analysis
      Fast Facts
Restaurant Usage & Outlook Tracker
      Fast Facts
Share of Stomach: Lunch Sales Analysis
      Fast Facts
Lunch Trends, Innovations & Strategies
      Fast Facts
Lunch Restaurant Selection Analysis
      Fast Facts
Lunch Menu Selection Analysis
      Fast facts
Budgeters and Healthy Eaters: Usage, Attitudes and Behavior Drilldrown
Lunch on the Menu: Restaurant Brand Trendsetters
      Chipotle Mexican Grill
      Panera Bread
      Freshii

Chapter 2: Macroeconomic Analysis
Restaurant sales rally fizzles; long slog ahead
Restaurant industry sales dip in June; future weakness likely
Spending upturn hinges on consumers with strong balance sheets
      Upturn to benefit casual restaurants at expense of family and fast food/QSR
      players
      Non-discretionary spending a recession rule
      But affluent may help drive growth in discretionary spend
Packaged Facts’ Consumer Restaurant Tracker: Gloomy Near-Term Outlook
In-home breakfast and dinner trend remains significant
Bagging lunch takes a bite out of restaurant sales?
Graph 2-1: Consumer Restaurant Tracker: Current Behavior: A Top Line View
Looking ahead: Saving & grocery spending trumps limited service and full-
       service restaurant spend
Graph 2-2: Consumer Restaurant Tracker: Next 3 Months: A Top Line View
       February to June food services & drinking places monthly sales sequentially
       improve
       Full-service restaurants get needed shot in the arm; shift momentum away from
       grocery
Graph 2-3: Monthly Sales, 12-Month % Change, Grocery Stores & Food Services &
Drinking Places, Full-Service Restaurants and Limited-Service Eating Places, 2009-
2010
       But month-to-month spending trends suggest restaurant and food retail pullback
Graph 2-4: Monthly Sales, Month-to-Month % Change, Grocery Stores & Food Services
& Drinking Places, Full-Service Restaurants and Limited-Service Eating Places, 2009-
2010
Restaurant Performance Index contracts for second straight month
Graph 2-5: Restaurant Performance Index, Monthly Metrics, 2006-2010
Macroeconomic factors shaping restaurant sales
Consumer confidence? No, not really
       Present Situation Index decreases as perceptions of job prospects continue to
       darken
       Expectations Index weighed down by dimmer outlook on job prospects
Unemploymentrate stagnates
       Some perspective:
Graph 2-6: Unemployment Rate and Consumer Confidence: 2007-2010
By demographic, unemployment rates settle into troughs
       Disparity in unemployment rates by education level
       Young adults, minorities and men also find harder going
Graph 2-7: Unemployment Rate, Selected Demographics, 2007-2010
Graph 2-8: Unemployment Rate, by Race/Ethnicity, 2007-2010
How can increasing personal savings and reducing the debt burden be bad?
       Households continue to repair their balance sheets
Graph 2-9: Consumer Debt Burden, 2000-2010
Graph 2-10: Savings Rate & Debt Service Ratio & Financial Obligations Ratio, 2007-
2010
Unemployment and GPD forecast: expect recovery to take several years
       Slow employment rebound to coincide with a slowrebound in consumer spending
Graph 2-11: Unemployment and GDP Forecast, 2010-12
Stock & housing declines deflate household wealth; rebound to record 2006 levels a
long way off
       Q1 2009 to Q1 2010 sees uptick in household wealth, but still $10 trillion off 2006
       high
Graph 2-12: Household Net Worth, 2005-10
       Case-Shiller and FOMC housing pessimism
       Q2 2010 summary equities analysis
Graph 2-13: Wealth Effect: Wilshire 5000 and Case-Shiller Composite-20 Index: 2007-
2010
Food at home maintains pricing edge
Graph 2-14: CPI: Food at Home vs. Food Away from Home, 2005-2010
Graph 2-15: CPI: Food at Home vs. Food Away from Home, 2005-2010
Food inflation forecast remains muted
      CPI forecast for food at home and food away from home
Commodities pricing analysis
      Intermediate foods and feeds index dips during Q1 2010
      Prepared animal feed prices lead decline
      Dairy product index falls after Q4 2009 hike
      Finished consumer foods rise
      Crude foodstuffs and feedstuffs rise tapers from Q4 2009 pop

Chapter 3: Restaurant Usage & Outlook Tracker
Note on reading charts
Packaged Facts’ Consumer Restaurant Tracker: at-home food spend trumps out-of-
home spend
       February 2010 trend continues in June 2010
Taking a bite from lunch
Graph 3-1: Consumer Restaurant Tracker: Current Behavior: A Top Line View
       Looking ahead: Consumers more likely to save & spend on groceries than spend
       at restaurants
Graph 3-2: Consumer Restaurant Tracker: Next 3 Months: A Top Line View
       Planned spending on fast food appears grim
Graph 3-3: Consumer Restaurant Tracker: Future Behavior: Fast Food Restaurant
Spending
       Intended full-service spend lacks promise
Graph 3-4: Consumer Restaurant Tracker: Future Behavior: Full-Service Restaurant
Spending
Intention to save money remains high
Graph 3-5: Consumer Restaurant Tracker: Future Behavior: Saving Money
Lunch restaurant goers intend to spend more at restaurants
       Intended spend more likely among smoothie shop, fine dining and coffeehouse
       lunch goers
Graph 3-6: Consumer Restaurant Tracker: Future Behavior: Full-Service and Limited-
Service Spending, Restaurant Lunch Users
Restaurant usage and usage frequency
Overview
       February 2010 to June 2010 mean use comparison
Graph 3-7: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010
Graph 3-8: Restaurant Usage in Last Month, by Restaurant Type, 2010
18-34s continue to drive guest counts
Graph 4-6: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010, by Age
       18-34s exhibit higher usage
       Key smoothie shop and street stand users
Graph 3-10: Restaurant Usage in Last Month, by Restaurant Type, 2010, by Age
HH income: fast food enjoys egalitarian status
Graph 4-6: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010,
by HH Income
Graph 3-12: Restaurant Usage in Last Month, by Restaurant Type, 2010, by HH Income
Employment status: having a job pays the bills but also fits restaurant lifestyle
Graph 3-13: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010,
by Employment Status
       Full-time workers and students also compare favorably regarding overall usage
Graph 3-14: Restaurant Usage in Last Month, by Restaurant Type, 2010, by
Employment Status
Restaurant lunch use
Lunch day part accounts for about one-third of all usage
Graph 3-15: Day Part Usage on Last Visit, 2010
Fast food dominates lunch
Graph 3-16: Restaurant Usage in Last Month for Lunch, 2010
       Gender: men + grab-and-go
Graph 3-17: Restaurant Usage in Last Month for Lunch, 2010, by Gender
       Age: mobile lifestyles speak volumes
Graph 3-18: Restaurant Usage in Last Month for Lunch, 2010, by Age
       HH income: it’s all about disposable income
Graph 3-19: Restaurant Usage in Last Month for Lunch, 2010, by HH Income
       Employment status a driving factor
       Students at the grocery store?
Graph 3-20: Restaurant Usage in Last Month for Lunch, 2010, by Employment Status
Appendix: Consumer Survey

Chapter 4: Share of Stomach: Lunch Sales Analysis
Market size and overview
       Declining sales amidst a very touch climate
       Near-term challenges
Lunch daypart sales peak in 2008, dip in 2009 and 2010
Graph 4-1: Lunch sales: limited-service and full-service restaurants, 2005-2011
Graph 4-1: Lunch sales: limited-service and full-service restaurants, % growth, 2005-
2011
       Terminology and sourcing note
Lunch comprises 12% of HH food spend
Graph 4-2: Food at Home versus Food Away from Home Daypart Spend
Fast food has 50% share of lunch daypart sales
Graph 4-3: Lunch Expenditures: Fast Food, Full-Service, Vending Machines &
Cafeterias
Consumer food expenditure trends suggest migration to food at home spend
Table 4-1: Consumer Food Expenditures, 2005-08
Lunch share of restaurant spend consistent during 2005-08
Table 4-2: Meals Away From Home Expenditures, by Daypart, 2005-08
Lunch takes only a 1.2% bite out of pre-tax income
Table 4-3: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending
Machines Cafeteria Spend, 2005-08
Graph 4-4: Lunch Expenditures: Fast Food, Full-Service, Vending Machines &
Cafeterias, 2005-08
Lunch expenditures highest in south
       Northeast consumer units spend least on percentage basis
Table 4-4: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending
Machines and Cafeteria Spend, by Region
On a per dollar basis, youth drives lunch spend
       56% of 65+ lunch dollars go to full-service establishments
Table 4-5: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending
Machines and Cafeteria Spend, by Age
Higher income = higher absolute lunch spend, but lower percentage of income
Table 4-6: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending
Machines and Cafeteria Spend, by Income
Lunch share of wallet highest among Hispanics
Table 4-7: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending
Machines and Cafeteria Spend, by Race/Ethnicity
Guest Traffic Analysis
Frequency counts: definition
1 in 20 McDonald’s monthly users goes 14 or more times per month!
Guest traffic rises most at Panera Bread and Chipotle Mexican Grill
Table 4-8: Guest Traffic: Limited-Service Restaurants, Selected Lunch Players, 2008-10
Daypart meal spend analysis
Breakfast meal spend approaches that for lunch at fast food and family restaurants
Graph 4-5: Consumer Restaurant Meal Spend, by Daypart and Restaurant Type, 2010
Lunch meal spend by restaurant type reveals significant differences
Graph 4-6: Lunch Meal Spend, Fast Food Versus Family Restaurants, Selected
Demographics
Fast food daypart spending reveals differences among married and older users
Table 4-9: Meal Spend by Daypart, Fast Food Restaurants, Selected Demographics

Chapter 5: Lunch Trends, Innovations & Strategies
Discounting and bundling
Extreme affordability weighs down fast food/QSR
Everyday value strategies add wrinkle to family dining segment
Full-service value menus
Lunchtime LTO meal bundling trends
       Fast food/QSR
       Fast casual
       Family & casual dining restaurants
Health on menu
       Choosing more healthful options away from home on the rise
What does “healthy” mean to consumers?
Table 5-1: Restaurant Health Attitudes, 2010
Table 5-2: Consumers’ Associations with “Healthy,” 2010
       Challenging perceptions that healthy food is more expensive

Chapter 6: Lunch Restaurant Selection Analysis
Note on reading charts
Lunch restaurant selection influencers
Overview
Graph 6-1: Lunch Restaurant Selection Influencers, 2010
Lunch restaurant selection: convenience influencers
       Gender shapes routine
Graph 6-2: Restaurant Selection: Lunch Convenience Influencers, by Gender, 2010
       Age-driven lifestyle needs influence lunch restaurant selection
Graph 6-3: Restaurant Selection: Lunch Convenience Influencers, by Age, 2010
       HH income shapes importance of work proximity
Graph 6-4: Restaurant Selection: Lunch Convenience Influencers, by HH Income, 2010
       Employment status: work implies less mobility, more routine
Graph 6-5: Restaurant Selection: Lunch Convenience Influencers, by Employment
Status, 2010
       Urban, suburban, or rural location affect proximity and routine
Graph 6-6: Restaurant Selection: Lunch Convenience Influencers, Urban, Suburban,
Rural, 2010
Restaurant selection: lunch menu item influencers
       Portion control for cost and for calories entices women
Graph 6-7: Restaurant Selection: Lunch Menu Influencers, by Gender, 2010
       Portion control for cost savings a cue for 18-24s
Graph 6-8: Restaurant Selection: Lunch Menu Influencers, by Age, 2010
       Healthy menu items an egalitarian influence
Graph 6-9: Restaurant Selection: Lunch Menu Influencers, by HH Income, 2010
       Students swayed by a plethora of menu items; retires another matter
Graph 6-10: Restaurant Selection: Lunch Menu Influencers, by Employment Status,
2010
Restaurant selection: lunch cost threshold influencers
       Meal deal? At lower price points, women lunch goers just a tad more interested
Graph 6-11: Restaurant Selection: Lunch Cost Threshold Influencers, by Gender, 2010
       Younger people: meal deal, please!
Graph 6-12: Restaurant Selection: Lunch Cost Threshold Influencers, by Age, 2010
       HH income: don’t underestimate interest in meal deals across the board
Graph 6-13: Restaurant Selection: Lunch Cost Threshold Influencers, by HH Income,
2010
       Employment status: students seeking deals
Graph 6-14: Restaurant Selection: Lunch Cost Threshold Influencers, by Employment
Status, 2010
Restaurant selection: lunch dine-in partner influencers
       Age: friends, family, or alone?
Graph 6-15: Restaurant Selection: Lunch Dine-in Partner Influencers, by Age, 2010
Restaurant selection: lunch takeout partner influencers
       Save me some money on tip and drinks?
Graph 6-16: Restaurant Selection: Lunch Takeout Partner Influencers, by Income, 2010

Chapter 7: Lunch Menu Selection Analysis
Note on reading charts
Lunch menu selection influencers
Overview
Graph 7-1: Menu Selection Influencers, Lunch Daypart, 2010
      Health and bundles skew the age spectrum
Graph 7-2: Lunch Menu Selection Influencers, by Age, 2010
      HH income: seasonal and healthful items versus bundled items
Graph 7-3: Lunch Menu Selection Influencers, by HH Income, 2010
Employment status: students love a good bundle
      Graph 7-4: Lunch Menu Selection Influencers, by Employment Status, 2010
Urban, suburban, or rural location: here’s to urban health
Graph 7-5: Lunch Menu Selection Influencers, by Rural/Urban/Suburban, 2010

Chapter 8: Budgeters and Healthy Eaters: Usage, Attitudes and Behavior
Drilldrown
Meet the Psychographic Groups
Some men really do like to eat healthy: how can operators connect with them?
       Budgeters drawn by cost, naturally, but by other factors, too
       Portion size provides double-sided menu connection with male Healthy Eaters
       Meal pricing thresholds provide opportunity to connect with male Healthy Eaters
Table 8-1: Selected Lunch Restaurant Selection Factors, Psychographic Groups, by
Gender
Income splits reveal some lunch surprises
       Difference and customization more of a factor among <$50K Healthy Eaters
       Promotions and bundles incent wider swath of lower-HH income Budgeters
Table 8-2: Selected Lunch Restaurant Selection Factors, Budgeters & Healthy Eaters,
by HH Income
Youth drives interest among both Budgeters and Healthy Eaters
Table 8-3: Selected Lunch Restaurant Selection Factors, Budgeters & Healthy Eaters,
by Age

Chapter 9: Restaurant Lunch Dining Partner Analysis
Fast food lunch usage leads all dayparts
Table 9-1: Fast Food Usage, by Daypart, Selected Demographics, 2010
Family restaurant & steakhouse lunch usage lags dinner daypart
Table 9-2: Family Restaurant & Steakhouse Usage, by Daypart, Selected
Demographics, 2010
Fast food lunch dining partners differ according to demographic
Table 9-3: Lunch Fast Food Usage, by Dining Partner, Selected Demographics, 2010
Family restaurant & steakhouse lunch: more of an adult thing
Table 9-4: Lunch Family Restaurant & Steakhouse Usage, by Dining Partner, Selected
Demographics, 2010

Chapter 10: Lunch on the Menu: Restaurant Brand Analysis
Note on food lifestyle segmentation charts and demographics
Chipotle Mexican Grill, Inc.
Competitive positioning: Customization; Food with Integrity
      Marketing that backs Food with Integrity
2010 strategy
      On the menu
Restaurant expansion plans: digging deeper where presence is already
       established
       Loyalty program to target “evangelical, super-passionate regular customers”
Chipotle Mexican Grill: selected demographics
       A 10 million-strong consumer universe
       Strong income and gender skew
Table 10-1: Chipotle Mexican Grill Users: Selected Demographics
Food Lifestyle Segmentation: Variety on a Budget& True Foodies
Graph 10-1: Chipotle Usage Frequency Analysis, Food Lifestyle Segmentation
Chipotle Mexican Grill users: gourmets, meet practicality
Table 10-2: Chipotle Mexican Grill Users: Food, Health and Diet Attitudes
Chipotle by the numbers
Table 10-3: Chipotle Mexican Grill, Selected Metrics, 2007-09
       Q2 2010 sales driven by increased visits
       Outlook
Table 10-4: Chipotle Mexican Grill, Quarterly Sales Metrics, 2009-10
Panera Bread
       2009-2010 lunch strategy has positive momentum
       Trading up
       “You Pick”!
       Owning the menu category
       Next up: Paninis
       Catering: going after the big fish
       Loyalty programcoming to a Panera near you
       A toe in the licensing water
Panera Bread: selected demographics
       A 16.4 million universe
       Strong income and gender skew
Table 10-5: Panera Bread Users: Selected Demographics
Panera Bread Food Lifestyle Segmentation
       Variety on a Budgetand True Foodies turn the doors with greatest frequency
Graph 10-2: Panera Bread Usage Frequency Analysis, Food Lifestyle Segmentation
Panera Bread users: food, health and diet attitudes
       A more health-conscious bunch with a touch of food guilt
Table 10-6: Panera Bread Users: Food, Health and Diet Attitudes
Sales trending upward
Table 10-7: Panera Bread, Selected Metrics, 2007-09
       Q2 2010 same-store sales jump almost 10%
       Shift in menu mix suggests movement toward higher-priced items
Table 10-8: Panera Bread, Quarterly Sales Metrics, Q2 2009 & Q2 2010
Freshii—the new name in healthful fare
The Freshii store and menu
Fast and convenient
Health placed front and center
       Calories and other health information updated in real time
A Freshii view of customization
Technology savvy
       Green initiatives



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Lunch Trends in the U.S. Foodservice Market

  • 1. Get more info on this report! Lunch Trends in the U.S. Foodservice Market October 1, 2010 To help foodservice industry participants face challenges unique to the lunch daypart, Lunch Trends in the U.S. Foodservice Market provides insight on the lunch goer’s decision-making process. By putting a finger to the lunch goer’s pulse, we provide insight on two keys factors to lunch-time foodservice: how and why the consumer decided on a specific restaurant from which to obtain lunch, and how and why that consumer decides what to order from the menu. Introductory findings include the following: When deciding on a restaurant from which to obtain lunch, 37% of lunch goers cite a favorite menu item as influencing their choice, and some 36% cite a different menu item than what they have at home. But low cost has become the industry mantra—and is also important to many consumers. About 35% cite a meal priced under $5 as an influence when selecting a restaurant, and 31% say that a meal priced under $10 has influenced them to select a restaurant for lunch. With proprietary consumer research laying the foundation, this report weaves consultative insight with analysis of lunchtime limited-time offer and value trends; current lunchtime guest check averages; planned restaurant spending; and guest traffic patterns at selected brands. We also shine a light on leading lunch-centric brands, by outlining menu strategies and related innovations, and then tying them to demographic analysis of the brand users’ diet, health, and food attitudes; and usage patterns. The report also trends lunch daypart sales by demographics such as income, age, region, and race/ethnicity. Analysis also focuses on consumers particularly important to the lunch daypart, such as the full-time and part-time employed. While the restaurant industry is the primary focus of the report, consumer survey assessment incorporates prepared foods at grocery stores and convenience stores, and trend analysis incorporates both restaurants and food retail. Additional Information Market Insights: A Selection From The Report
  • 2. Restaurant usage and usage frequency As part of our proprietary June 2010 consumer survey, Packaged Facts measured restaurant usage and mean usage frequency by restaurant type. As expected, mean use of “fast food/quick service restaurants” was substantially higher than any other restaurant type—about two and a half times higher than the runner-up causal restaurants—a testament to fast food’s strong value, low-cost, and convenience propositions. Consumers report an aggregate 11.2 visits in the past month to the listed restaurant types: fast food/quick-service visits represent under half (45%) of all visits, followed by casual restaurants (18%), family restaurants (15%) and coffeehouses (14%). Lunch day part accounts for about one-third of all usage About 34% of diners participating in Packaged Facts’ February 2010 proprietary consumer survey said they got “lunch” the “last time” they got food and/or drink from a restaurant, while 56% got “dinner/evening meal” and only 8% got “breakfast.” Extreme affordability weighs down fast food/QSR As we discussed in The U.S. Foodservice Landscape: Industry and Consumer Trends, Momentum and Migration (Packaged Facts, May 2010), fast food/QSR operators are playing the “price = value” card for everything its worth. By pushing the envelope with $1 deals, they do risk enabling a pool of “extreme affordability” customers hooked on products that also suck the life out of guest check averages. The industry risks significant damage to margins and sales in the process, especially in light of our theory that trade down to QSR from more expensive restaurant alternatives has slowed considerably as the economy has stabilized. Moreover, without a way to pull new traffic into its restaurants, brand growth now relies on share taking, so the industry essentially risks cannibalizing itself. In the News Restaurant Lunch Spending to Rebound in 2011: Strategies Targeting Cost and Health-Conscious Customers Sustain Industry in the Interim New York, September 8, 2010 — U.S. consumer spending on lunch served in restaurants is forecast to rebound 2% in 2011 to reach $114 billion following two years of recession-related declines, according to Lunch Trends in the U.S. Foodservice
  • 3. Market by research publisher Packaged Facts. After rising to $119 billion in 2008, lunch daypart sales declined 4% in 2009, and sales are estimated to fall another 3% in 2010 to $112 billion. “This has been a very tough climate for lunch foodservice and its counterparts, and that won’t change overnight although change is coming,” says Don Montuori, publisher of Packaged Facts. “Growth in the lunch daypart still faces a few near-term challenges including the impact of unemployment on work-driven restaurant routines, bargain- minded consumers who weigh the cost of a bagged lunch against the indulgence of eating out, and an industry environment in which players are chasing foot traffic at the expense of guest check through the extreme push of value meal deals.” Ironically, by pushing the envelope with $1 deals, fast food operators are enabling a pool of “extreme affordability” customers hooked on products that have indeed undermined guest check averages yet have also helped sustain the industry. Respondents to Packaged Facts’ proprietary survey reveal that interest in lunchtime meals priced under $5 and under $10 is stable across household income brackets, suggesting price sensitivity among a large segment of diners regardless of their personal wages. Respondents aged 18-24 are 60% more likely than average to choose a restaurant because it offers meals for under $3. The nigh ubiquitous limited time offer—with its allure to attract new visits and test longer-term menu strategies—and the addition of bundling components could allow restaurants to build up guest check sizes without sacrificing foot traffic, according to the report. Notable examples include Taco Bell’s $2 Meal Deal, which by offering three items for $2 is intended as a twist on the more common 1:1 ratio of items per dollar as featured in Jack in the Box’s “Pick 3 for $3” customizable LTO value meal. Additionally, strategies by the likes of Denny’s and Bob Evan’s to place everyday value for quality food at the forefront of their branding initiatives makes a great deal of sense in the family restaurant sector, where value for the money has always been a selling point. Ingredients are almost as important as price for many consumers when dining out, and food operators confirm guests’ growing interest in better-for-you choices. Customers seek foods offering positive health benefits (such as fiber and whole grains) and menu items featuring more vegetables or fruit but less meat. Packaged Facts’ research suggests that students are more likely than average to be influenced by healthful lunch foodservice decisions, while both men and women are likely to choose a restaurant that offers smaller portion sizes to reduce cost and control calories. Lunch Trends in the U.S. Foodservice Market provides insight and analysis on recession-driven changes in the restaurant industry, focusing on related consumer attitudes and behaviors shaping the industry today and positioning the industry tomorrow. The report assesses key industry and consumer trends as applied to restaurant segments and restaurant brands; analysis is generally framed in terms of current trend momentum and 12-month outlook. With proprietary consumer research laying the foundation, this report also weaves consultative insight with analysis of
  • 4. lunchtime limited-time offer and value trends; current lunchtime guest check averages; planned restaurant spending; and guest traffic patterns at selected brands. About Packaged Facts - Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer goods and retailing, foods and beverages, demographics, pet products and services, and financial products. Packaged Facts also offers a full range of custom research services. Table of Contents Chapter 1: Executive Summary Scope and Methodology Scope Methodology Macroeconomic Analysis Fast Facts Restaurant Usage & Outlook Tracker Fast Facts Share of Stomach: Lunch Sales Analysis Fast Facts Lunch Trends, Innovations & Strategies Fast Facts Lunch Restaurant Selection Analysis Fast Facts Lunch Menu Selection Analysis Fast facts Budgeters and Healthy Eaters: Usage, Attitudes and Behavior Drilldrown Lunch on the Menu: Restaurant Brand Trendsetters Chipotle Mexican Grill Panera Bread Freshii Chapter 2: Macroeconomic Analysis Restaurant sales rally fizzles; long slog ahead Restaurant industry sales dip in June; future weakness likely Spending upturn hinges on consumers with strong balance sheets Upturn to benefit casual restaurants at expense of family and fast food/QSR players Non-discretionary spending a recession rule But affluent may help drive growth in discretionary spend Packaged Facts’ Consumer Restaurant Tracker: Gloomy Near-Term Outlook In-home breakfast and dinner trend remains significant Bagging lunch takes a bite out of restaurant sales? Graph 2-1: Consumer Restaurant Tracker: Current Behavior: A Top Line View
  • 5. Looking ahead: Saving & grocery spending trumps limited service and full- service restaurant spend Graph 2-2: Consumer Restaurant Tracker: Next 3 Months: A Top Line View February to June food services & drinking places monthly sales sequentially improve Full-service restaurants get needed shot in the arm; shift momentum away from grocery Graph 2-3: Monthly Sales, 12-Month % Change, Grocery Stores & Food Services & Drinking Places, Full-Service Restaurants and Limited-Service Eating Places, 2009- 2010 But month-to-month spending trends suggest restaurant and food retail pullback Graph 2-4: Monthly Sales, Month-to-Month % Change, Grocery Stores & Food Services & Drinking Places, Full-Service Restaurants and Limited-Service Eating Places, 2009- 2010 Restaurant Performance Index contracts for second straight month Graph 2-5: Restaurant Performance Index, Monthly Metrics, 2006-2010 Macroeconomic factors shaping restaurant sales Consumer confidence? No, not really Present Situation Index decreases as perceptions of job prospects continue to darken Expectations Index weighed down by dimmer outlook on job prospects Unemploymentrate stagnates Some perspective: Graph 2-6: Unemployment Rate and Consumer Confidence: 2007-2010 By demographic, unemployment rates settle into troughs Disparity in unemployment rates by education level Young adults, minorities and men also find harder going Graph 2-7: Unemployment Rate, Selected Demographics, 2007-2010 Graph 2-8: Unemployment Rate, by Race/Ethnicity, 2007-2010 How can increasing personal savings and reducing the debt burden be bad? Households continue to repair their balance sheets Graph 2-9: Consumer Debt Burden, 2000-2010 Graph 2-10: Savings Rate & Debt Service Ratio & Financial Obligations Ratio, 2007- 2010 Unemployment and GPD forecast: expect recovery to take several years Slow employment rebound to coincide with a slowrebound in consumer spending Graph 2-11: Unemployment and GDP Forecast, 2010-12 Stock & housing declines deflate household wealth; rebound to record 2006 levels a long way off Q1 2009 to Q1 2010 sees uptick in household wealth, but still $10 trillion off 2006 high Graph 2-12: Household Net Worth, 2005-10 Case-Shiller and FOMC housing pessimism Q2 2010 summary equities analysis Graph 2-13: Wealth Effect: Wilshire 5000 and Case-Shiller Composite-20 Index: 2007- 2010
  • 6. Food at home maintains pricing edge Graph 2-14: CPI: Food at Home vs. Food Away from Home, 2005-2010 Graph 2-15: CPI: Food at Home vs. Food Away from Home, 2005-2010 Food inflation forecast remains muted CPI forecast for food at home and food away from home Commodities pricing analysis Intermediate foods and feeds index dips during Q1 2010 Prepared animal feed prices lead decline Dairy product index falls after Q4 2009 hike Finished consumer foods rise Crude foodstuffs and feedstuffs rise tapers from Q4 2009 pop Chapter 3: Restaurant Usage & Outlook Tracker Note on reading charts Packaged Facts’ Consumer Restaurant Tracker: at-home food spend trumps out-of- home spend February 2010 trend continues in June 2010 Taking a bite from lunch Graph 3-1: Consumer Restaurant Tracker: Current Behavior: A Top Line View Looking ahead: Consumers more likely to save & spend on groceries than spend at restaurants Graph 3-2: Consumer Restaurant Tracker: Next 3 Months: A Top Line View Planned spending on fast food appears grim Graph 3-3: Consumer Restaurant Tracker: Future Behavior: Fast Food Restaurant Spending Intended full-service spend lacks promise Graph 3-4: Consumer Restaurant Tracker: Future Behavior: Full-Service Restaurant Spending Intention to save money remains high Graph 3-5: Consumer Restaurant Tracker: Future Behavior: Saving Money Lunch restaurant goers intend to spend more at restaurants Intended spend more likely among smoothie shop, fine dining and coffeehouse lunch goers Graph 3-6: Consumer Restaurant Tracker: Future Behavior: Full-Service and Limited- Service Spending, Restaurant Lunch Users Restaurant usage and usage frequency Overview February 2010 to June 2010 mean use comparison Graph 3-7: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010 Graph 3-8: Restaurant Usage in Last Month, by Restaurant Type, 2010 18-34s continue to drive guest counts Graph 4-6: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010, by Age 18-34s exhibit higher usage Key smoothie shop and street stand users Graph 3-10: Restaurant Usage in Last Month, by Restaurant Type, 2010, by Age HH income: fast food enjoys egalitarian status Graph 4-6: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010,
  • 7. by HH Income Graph 3-12: Restaurant Usage in Last Month, by Restaurant Type, 2010, by HH Income Employment status: having a job pays the bills but also fits restaurant lifestyle Graph 3-13: Mean Restaurant Usage in Last Month, by Restaurant Type, 2010, by Employment Status Full-time workers and students also compare favorably regarding overall usage Graph 3-14: Restaurant Usage in Last Month, by Restaurant Type, 2010, by Employment Status Restaurant lunch use Lunch day part accounts for about one-third of all usage Graph 3-15: Day Part Usage on Last Visit, 2010 Fast food dominates lunch Graph 3-16: Restaurant Usage in Last Month for Lunch, 2010 Gender: men + grab-and-go Graph 3-17: Restaurant Usage in Last Month for Lunch, 2010, by Gender Age: mobile lifestyles speak volumes Graph 3-18: Restaurant Usage in Last Month for Lunch, 2010, by Age HH income: it’s all about disposable income Graph 3-19: Restaurant Usage in Last Month for Lunch, 2010, by HH Income Employment status a driving factor Students at the grocery store? Graph 3-20: Restaurant Usage in Last Month for Lunch, 2010, by Employment Status Appendix: Consumer Survey Chapter 4: Share of Stomach: Lunch Sales Analysis Market size and overview Declining sales amidst a very touch climate Near-term challenges Lunch daypart sales peak in 2008, dip in 2009 and 2010 Graph 4-1: Lunch sales: limited-service and full-service restaurants, 2005-2011 Graph 4-1: Lunch sales: limited-service and full-service restaurants, % growth, 2005- 2011 Terminology and sourcing note Lunch comprises 12% of HH food spend Graph 4-2: Food at Home versus Food Away from Home Daypart Spend Fast food has 50% share of lunch daypart sales Graph 4-3: Lunch Expenditures: Fast Food, Full-Service, Vending Machines & Cafeterias Consumer food expenditure trends suggest migration to food at home spend Table 4-1: Consumer Food Expenditures, 2005-08 Lunch share of restaurant spend consistent during 2005-08 Table 4-2: Meals Away From Home Expenditures, by Daypart, 2005-08 Lunch takes only a 1.2% bite out of pre-tax income Table 4-3: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending Machines Cafeteria Spend, 2005-08 Graph 4-4: Lunch Expenditures: Fast Food, Full-Service, Vending Machines & Cafeterias, 2005-08
  • 8. Lunch expenditures highest in south Northeast consumer units spend least on percentage basis Table 4-4: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending Machines and Cafeteria Spend, by Region On a per dollar basis, youth drives lunch spend 56% of 65+ lunch dollars go to full-service establishments Table 4-5: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending Machines and Cafeteria Spend, by Age Higher income = higher absolute lunch spend, but lower percentage of income Table 4-6: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending Machines and Cafeteria Spend, by Income Lunch share of wallet highest among Hispanics Table 4-7: Lunch Expenditures: Selected Metrics & Fast Food, Full-Service, Vending Machines and Cafeteria Spend, by Race/Ethnicity Guest Traffic Analysis Frequency counts: definition 1 in 20 McDonald’s monthly users goes 14 or more times per month! Guest traffic rises most at Panera Bread and Chipotle Mexican Grill Table 4-8: Guest Traffic: Limited-Service Restaurants, Selected Lunch Players, 2008-10 Daypart meal spend analysis Breakfast meal spend approaches that for lunch at fast food and family restaurants Graph 4-5: Consumer Restaurant Meal Spend, by Daypart and Restaurant Type, 2010 Lunch meal spend by restaurant type reveals significant differences Graph 4-6: Lunch Meal Spend, Fast Food Versus Family Restaurants, Selected Demographics Fast food daypart spending reveals differences among married and older users Table 4-9: Meal Spend by Daypart, Fast Food Restaurants, Selected Demographics Chapter 5: Lunch Trends, Innovations & Strategies Discounting and bundling Extreme affordability weighs down fast food/QSR Everyday value strategies add wrinkle to family dining segment Full-service value menus Lunchtime LTO meal bundling trends Fast food/QSR Fast casual Family & casual dining restaurants Health on menu Choosing more healthful options away from home on the rise What does “healthy” mean to consumers? Table 5-1: Restaurant Health Attitudes, 2010 Table 5-2: Consumers’ Associations with “Healthy,” 2010 Challenging perceptions that healthy food is more expensive Chapter 6: Lunch Restaurant Selection Analysis Note on reading charts Lunch restaurant selection influencers
  • 9. Overview Graph 6-1: Lunch Restaurant Selection Influencers, 2010 Lunch restaurant selection: convenience influencers Gender shapes routine Graph 6-2: Restaurant Selection: Lunch Convenience Influencers, by Gender, 2010 Age-driven lifestyle needs influence lunch restaurant selection Graph 6-3: Restaurant Selection: Lunch Convenience Influencers, by Age, 2010 HH income shapes importance of work proximity Graph 6-4: Restaurant Selection: Lunch Convenience Influencers, by HH Income, 2010 Employment status: work implies less mobility, more routine Graph 6-5: Restaurant Selection: Lunch Convenience Influencers, by Employment Status, 2010 Urban, suburban, or rural location affect proximity and routine Graph 6-6: Restaurant Selection: Lunch Convenience Influencers, Urban, Suburban, Rural, 2010 Restaurant selection: lunch menu item influencers Portion control for cost and for calories entices women Graph 6-7: Restaurant Selection: Lunch Menu Influencers, by Gender, 2010 Portion control for cost savings a cue for 18-24s Graph 6-8: Restaurant Selection: Lunch Menu Influencers, by Age, 2010 Healthy menu items an egalitarian influence Graph 6-9: Restaurant Selection: Lunch Menu Influencers, by HH Income, 2010 Students swayed by a plethora of menu items; retires another matter Graph 6-10: Restaurant Selection: Lunch Menu Influencers, by Employment Status, 2010 Restaurant selection: lunch cost threshold influencers Meal deal? At lower price points, women lunch goers just a tad more interested Graph 6-11: Restaurant Selection: Lunch Cost Threshold Influencers, by Gender, 2010 Younger people: meal deal, please! Graph 6-12: Restaurant Selection: Lunch Cost Threshold Influencers, by Age, 2010 HH income: don’t underestimate interest in meal deals across the board Graph 6-13: Restaurant Selection: Lunch Cost Threshold Influencers, by HH Income, 2010 Employment status: students seeking deals Graph 6-14: Restaurant Selection: Lunch Cost Threshold Influencers, by Employment Status, 2010 Restaurant selection: lunch dine-in partner influencers Age: friends, family, or alone? Graph 6-15: Restaurant Selection: Lunch Dine-in Partner Influencers, by Age, 2010 Restaurant selection: lunch takeout partner influencers Save me some money on tip and drinks? Graph 6-16: Restaurant Selection: Lunch Takeout Partner Influencers, by Income, 2010 Chapter 7: Lunch Menu Selection Analysis Note on reading charts Lunch menu selection influencers Overview
  • 10. Graph 7-1: Menu Selection Influencers, Lunch Daypart, 2010 Health and bundles skew the age spectrum Graph 7-2: Lunch Menu Selection Influencers, by Age, 2010 HH income: seasonal and healthful items versus bundled items Graph 7-3: Lunch Menu Selection Influencers, by HH Income, 2010 Employment status: students love a good bundle Graph 7-4: Lunch Menu Selection Influencers, by Employment Status, 2010 Urban, suburban, or rural location: here’s to urban health Graph 7-5: Lunch Menu Selection Influencers, by Rural/Urban/Suburban, 2010 Chapter 8: Budgeters and Healthy Eaters: Usage, Attitudes and Behavior Drilldrown Meet the Psychographic Groups Some men really do like to eat healthy: how can operators connect with them? Budgeters drawn by cost, naturally, but by other factors, too Portion size provides double-sided menu connection with male Healthy Eaters Meal pricing thresholds provide opportunity to connect with male Healthy Eaters Table 8-1: Selected Lunch Restaurant Selection Factors, Psychographic Groups, by Gender Income splits reveal some lunch surprises Difference and customization more of a factor among <$50K Healthy Eaters Promotions and bundles incent wider swath of lower-HH income Budgeters Table 8-2: Selected Lunch Restaurant Selection Factors, Budgeters & Healthy Eaters, by HH Income Youth drives interest among both Budgeters and Healthy Eaters Table 8-3: Selected Lunch Restaurant Selection Factors, Budgeters & Healthy Eaters, by Age Chapter 9: Restaurant Lunch Dining Partner Analysis Fast food lunch usage leads all dayparts Table 9-1: Fast Food Usage, by Daypart, Selected Demographics, 2010 Family restaurant & steakhouse lunch usage lags dinner daypart Table 9-2: Family Restaurant & Steakhouse Usage, by Daypart, Selected Demographics, 2010 Fast food lunch dining partners differ according to demographic Table 9-3: Lunch Fast Food Usage, by Dining Partner, Selected Demographics, 2010 Family restaurant & steakhouse lunch: more of an adult thing Table 9-4: Lunch Family Restaurant & Steakhouse Usage, by Dining Partner, Selected Demographics, 2010 Chapter 10: Lunch on the Menu: Restaurant Brand Analysis Note on food lifestyle segmentation charts and demographics Chipotle Mexican Grill, Inc. Competitive positioning: Customization; Food with Integrity Marketing that backs Food with Integrity 2010 strategy On the menu
  • 11. Restaurant expansion plans: digging deeper where presence is already established Loyalty program to target “evangelical, super-passionate regular customers” Chipotle Mexican Grill: selected demographics A 10 million-strong consumer universe Strong income and gender skew Table 10-1: Chipotle Mexican Grill Users: Selected Demographics Food Lifestyle Segmentation: Variety on a Budget& True Foodies Graph 10-1: Chipotle Usage Frequency Analysis, Food Lifestyle Segmentation Chipotle Mexican Grill users: gourmets, meet practicality Table 10-2: Chipotle Mexican Grill Users: Food, Health and Diet Attitudes Chipotle by the numbers Table 10-3: Chipotle Mexican Grill, Selected Metrics, 2007-09 Q2 2010 sales driven by increased visits Outlook Table 10-4: Chipotle Mexican Grill, Quarterly Sales Metrics, 2009-10 Panera Bread 2009-2010 lunch strategy has positive momentum Trading up “You Pick”! Owning the menu category Next up: Paninis Catering: going after the big fish Loyalty programcoming to a Panera near you A toe in the licensing water Panera Bread: selected demographics A 16.4 million universe Strong income and gender skew Table 10-5: Panera Bread Users: Selected Demographics Panera Bread Food Lifestyle Segmentation Variety on a Budgetand True Foodies turn the doors with greatest frequency Graph 10-2: Panera Bread Usage Frequency Analysis, Food Lifestyle Segmentation Panera Bread users: food, health and diet attitudes A more health-conscious bunch with a touch of food guilt Table 10-6: Panera Bread Users: Food, Health and Diet Attitudes Sales trending upward Table 10-7: Panera Bread, Selected Metrics, 2007-09 Q2 2010 same-store sales jump almost 10% Shift in menu mix suggests movement toward higher-priced items Table 10-8: Panera Bread, Quarterly Sales Metrics, Q2 2009 & Q2 2010 Freshii—the new name in healthful fare The Freshii store and menu Fast and convenient Health placed front and center Calories and other health information updated in real time A Freshii view of customization
  • 12. Technology savvy Green initiatives Available immediately for Online Download at http://www.marketresearch.com/product/display.asp?productid=2756365 US: 800.298.5699 UK +44.207.256.3920 Int'l: +1.240.747.3093 Fax: 240.747.3004