Restaurants face their demographic dilemmas.

There’s no question that the U.S. economy has been on a roll the past two years. And yet, we’re not seeing similar momentum in the restaurant industry.

What gives?

As it turns out, the challenges that restaurants face are due to forces and factors that are a lot more fundamental than the shape of the economy.

It’s about demographics.  More specifically, two things are happening: Baby boomers are hitting retirement age … and millennials are having children.  Both of these developments impact restaurants in consequential ways.

Baby boomers – the generation born between 1946 and 1964 – total nearly 75 million people. They’ve been the engine driving the consumer economy in this country for decades.  But this big group is eating out less as they age.

The difference in behavior is significant. Broadly speaking, Americans spend ~44% of their food dollar away from home.  But for people under the age of 25 the percentage is ~50% spent away from home, whereas for older Americans it’s just 38%.

Moreover, seniors spend less money on food than younger people. According to 2017 data compiled by the federal government, people between the age of 35 and 44 spend more than $4,200 each year in restaurants, on average.  For people age 65 and older, the average is just $2,500 (~40% less).

Why the difference? The generally smaller appetites of people who are older may explain some of it, but I suspect it’s also due to lower disposable income.

For a myriad of reasons, significant numbers of seniors haven’t planned well financially for their retirement.  Far too many have saved exactly $0, and another ~25% enter retirement with less than $50,000 in personal savings.  Social security payments alone were never going to support a robust regime of eating out, and for these people in particular, what dollars they have in reserve amount to precious little.

Bottom line, restaurateurs who think they can rely on seniors to generate sufficient revenues and profits for their operations are kidding themselves.

As for the millennial generation – the 75 million+ people born between 1981 and 1996 – this group just barely outpaces Boomers as the biggest one of all. But having come of age during the Great Recession, it’s also a relatively poorer group.

In fact, the poverty rate among millennials is higher than for any other generation. They’re majorly in debt — to the tune of ~$42,000 per person on average (mostly not from student loans, either).  In many places they’ve had to face crushingly high real estate prices – whether buying or renting their residence.

Millennials are now at the prime age to have children, too, which means that more of their disposable income is being spent on things other than going out to eat.

If there is a silver lining, it’s that the oldest members of the millennial generation are now in their upper 30s – approaching the age when they’ll again start spending more on dining out.  But for most restaurants, that won’t supplant the lost revenues resulting from the baby boom population hitting retirement age.

One thought on “Restaurants face their demographic dilemmas.

  1. There’s another sociological change at work.

    Millennials are the first generation brought up to think of women as absolute equals. Men, as a result, no longer need to make such a hierarchical show of being protectors and providers, putting on a power suit, inviting their girlfriends to experience white glove service and an expensive meal.

    Most of the rooftop restaurants in San Francisco have gone out of business. If your girlfriend makes as much money as you do, and in the immortal words of Gloria Steinem, needs you as much as a hole in the head … well, you might as well ask her to get a sandwich at Subway!

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