Article

Gift cards to boost industry sales

November 28, 2010 by Valerie Killifer — Editor, FastCasual.com

Despite modest gains, the National Restaurant Association’s chief economist is predicting the continued tightening of consumer spending.

In his latest "Economist's Notebook" commentary, NRA chief economist Bruce Grindy points out that although the national economy has expanded in five consecutive quarters, income and spending growth remains sluggish. 

“With the economic recovery struggling to gain traction, income growth has also remained modest. Disposable personal income – a key indicator of restaurant sales performance – is only on pace to grow at a paltry 1.2 percent inflation-adjusted rate in 2010, up slightly from the modest 0.6 percent increase posted in 2009 but below the 1.7 percent gain in 2008,” he said in his blog. …

“Since data reporting began in 1947, the economy has never seen consumer spending on services grow at an annual rate below one percent.  However, household spending on services is on pace to grow at a modest 0.5 percent inflation-adjusted rate in 2010, which would come on the heels of a 0.9 percent gain in 2008 and 0.8 percent decline in 2009. It is clear that households’ belts remain tightened, and much of it has been at the expense of the service sector, which consumers often view as discretionary spending.”

Despite the outlook, there are a few industry bright spots.

Instead of candy or an iTunes gift card sticking out of stockings this year, many consumers are likely to get certificates to their favorite restaurant.

The NRA reported this week that the industry will continue to show signs of improvement during the holiday season thanks to stronger consumer spending and an increase in restaurant gift card sales.

The trend toward an increase in those sales is being helped by a rise in personal disposable income and employment rates, which are expected to bring the NRA’s holiday outlook to its highest level in several years.

In October, disposable personal income increased $48.3 billion, or 0.4 percent, according to the Bureau of Economic Analysis, while the national economy grew at a rate of 2.5 percent.

While the personal income increase represents the slowest three-year period of income growth, its impact on gift card purchases is anticipated to help restaurant sales overall during the first quarter.

“Because sales from gift cards aren’t reported until the card is redeemed, certificates given as gifts around the holidays can provide a welcome boost in the first quarter, which is typically a slower time for many restaurants,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA.

Riehle also is optimistic about the use of restaurants during the season by companies looking to host their holiday gatherings.

“As the economic downturn gained momentum in 2008, companies tightened their purse strings and many cut back on holiday celebrations. That trend is now turning in many locations, and restaurants are gearing up for a busier event season,” he said.

* Flickr photo bysmcgee

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