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On-Premise Update: Restaurant Sales On Pace For Growth, But Spirits, Wine Still Struggling

May 6, 2014

After a long period of relatively flat sales or very slow growth, there appears to be plenty of growth potential for the U.S. restaurant industry. Continued economic improvement and a high level of pent-up consumer demand are poised to kick-start a resurgence in dining out and boost the on-premise industry’s sales to more than $680 billion, their highest total in five years, according to the National Restaurant Association (NRA). However, some of the leading U.S. spirits and wine suppliers and wholesalers say that softness in the on-premise—particularly in the upscale casual segment—is hampering the business, and see 2014 shaping up as a challenging year for the channel.

“The on-premise has basically been flat,” Wayne Chaplin, president and COO of Southern Wine & Spirits, the largest U.S. spirits and wine wholesaler, recently told SND. “There’s really a dichotomy, with the high end doing well, and the casual segment continuing to struggle. As such, a broad recovery hasn’t occurred over the past few years.”

Bryan Fry, president and CEO of Pernod Ricard USA, concurs. “Some on-premise segments are doing well, so it’s not an across-the-board situation. For instance, the channel is thriving in cities like New York, Miami and Las Vegas,” he says. “When it comes to large chain accounts, the more upscale ones are also getting good results. The chains a step below—TGI Fridays, Red Lobster, Outback, etc.—are struggling.”

The harshest winter in recent history didn’t help matters. While overall U.S. on-premise traffic was down by 1.4% in 2013, according to research firm GuestSciences, the dropoff grew sharper in the fourth quarter of the year—when traffic was down by 2.3%—and continued to worsen in the first eight weeks of 2014, when it fell by 4.5%.

Still, operators expect a turnaround throughout the remainder of the year. A key driver in this is the strong commitment to growth on behalf of restaurateurs and bar owners. The NRA expects the total number of restaurant units in the United States to reach 990,000 this year and points to states like Arizona, Texas, Florida and Colorado as the principal leaders for the industry. Additionally, the NRA reports that the vast majority of restaurateurs surveyed said they expect their venues’ sales to stay the same or increase over the next six months.

Nightlife operators are more cautious than their restaurant counterparts. Tao Group manages the Tao Asian Bistro and Lavo Italian Restaurant brands in New York City and Las Vegas—venues that act as both restaurants and nightclubs, serving dinner and boasting an active late-night scene—as well as the Arlington Club and Bodega Negra in Manhattan. Partner and corporate executive chef Ralph Scamardella believes that people are ready to go out again, though he says that may not translate into more money for on-premise operators.

“The cost of everything, from payroll to rent to products, is going up and it’s very difficult to pass those costs along to consumers,” says Scamardella. “This is shaping up to be a tough year. It’s going to inspire everyone to get creative.” For example, he says seasonality will be a major driver for produce offerings in drinks and entrées.

Pernod Ricard’s Fry agrees that ingenuity will be crucial going forward, adding that he sees the most weakness in the upscale casual restaurant segment. “We need to help restaurants in this channel increase their ticket size for people coming in, through being able to help them get better value cocktails onto their menus and up-selling their ticket price,” Fry says. “So, in the scheme of things, it just means we have to work harder.” For the full story, see Impact’s May 1 issue.

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