Americans squeezed by rising prices for food and fuel are starting to change their spending habits. In the last couple of years, Americans spent more than 50 percent of food expenditures away from home, but recent news suggest that spending patterns on dining out are shifting. This week the news came out that two chains owned by the Metromedia Restaurant Group, Bennigan’s and Steak and Ale, filed for bankruptcy and closed their nearly 300 locations. (Click here for article.)

Squeezed by rising commodity prices, a rise in the minimum wage and a desire on behalf of consumers to save money, casual dining restaurants are in for a tough time. Of course, as Bob Goldin, executive vice president of Technomic, a restaurant industry consulting group, explains in this New York Times article, these companies have not helped themselves by developing strong brands. “All these bar and grill concepts are very, very similar,” he says, implying that their offering is differentiated only by the name and location.

But as casual dining restaurants feel the pain, others gain. Public radio’s Marketplace featured another story this week that described the way fast food restaurants are benefiting from peoples desire to eat out more cheaply. Restaurant industry analyst Dennis Milton says the numbers show customers from mid-priced chains like Applebee’s and Chili’s are defecting to places like McDonalds.

The trend to save money on eating out has been apparent for a while. Research conducted in January by Mintel revealed that 54 percent of people who dine out regularly were cutting back on restaurant spending because of the economy.

In that case, however, the research found that most people trying to cut back were opting to cook at home. Seventy percent of those trying to cut back claimed to be saving money by eating out less frequently.

And that, of course, was good news for other brand marketers. In spite of rising commodity and energy costs, Kraft Foods posted a higher than expected quarterly profit this week (see story here), in part driven by price increases for its brands.

Price increases in a recession, you might ask? Yes, it is possible, provided you have strong brands and they look like good value by comparison to someone else’s. Well-loved brands like Kraft Macaroni & Cheese, Oreo cookies, and Oscar Mayer hot dogs are less vulnerable to trading down than less familiar brands. Of course, brands in general are better off in the States than they are in Europe, where store brands and deep discounters are more prevalent. When competing with look-alike store brands, a clearly differentiated product is a real asset. (See Phil Herr’s POV, What’s In Store for Store Brands, for more on this topic.)

Earlier this year, Irene Rosenfeld, Kraft’s chief executive, promised to increase ad spending in an effort to improve equity and justify higher prices. In a call with analysts on Monday, she reported that the company has also emphasized the value of brands like Kool-Aid drink mixes and Jell-O powdered gelatin for consumers looking to stretch their dollar, saying, "As a result, we’ve seen renewed growth of these high-margin business."

Tough times do not mean doom and gloom for all. Strong brands are far better positioned to weather the storm than weak ones. The question I am left with is whether what we see in the United States is being repeated elsewhere. Our two Points of view on  Marketing During Recession (To Spend or not to Spend, Survival Tactics) generated considerable interest in South Africa, so it would seem that at least one other economy is feeling the pinch. Are consumers shifting their spending in your country? If so, how? Please let me know.

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This entry was posted on Friday, August 1st, 2008 at 2:39 pm and is filed under Brands. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Print this Page