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Guess Who's Coming to Dinner? Consumers

Rick Rusing | Stone | Getty Images

Family- and owner-operated restaurants can expect to profit from a resurgence in demand in the next five years as consumers shake off the lingering effects of the recession and resume eating out, a new report says. But they will need to adapt to changing consumer preferences and add healthier items to their menus to stay competitive with their larger chain competitors.

These independent restaurateurs will also have to get used to keeping their belts cinched tight as profit margins only marginally increase because of competition in a saturated market, according to a new report from IBISWorld, a research firm.

Consumers are also becoming more health conscious. While major restaurants have responded by expanding the number of healthful options on their menus, the general trend toward healthier eating has hurt many of the establishments that have not set their tables to satisfy this demand.

The single-location full-service restaurant industry consists of family- and owner-operated restaurants that are independent of chainor franchised networks. In general, operators are small businesses, so the industry is fragmented and highly competitive. Overall, concentration is extremely low because of the vast number of businesses, and there are no dominant players in this industry.

In recent years, the industry experienced a major slowdown due to the struggling economy. However, brighter conditions are on the horizon as consumer spending rebounds. Over the five years to 2012, IBISWorld estimates that industry revenue will grow at an average annual rate of 0.6 percent to $94.0 billion. After declining over 2009, revenue grew for the first time in four years in 2010 and 2011, and it is expected to continue its upward trajectory in 2012.

"In general, consumers are spending less on luxuries like eating out, and when they do, they purchase lower-priced items," said Nima Samadi, an IBISWorld analyst. "In the battle to capture a share of people's shrinking budgets, restaurants are losing to home-cooked meals or fast-food restaurants."

While the industry is currently experiencing stronger operating conditions in 2012, operators will still have to contend with customers who are hesitant to part with their money. Operators must monitor and adjust to consumer changes, said Samadi. If they manage to meet changing guest needs, owners will be well poised to take advantage of the expected rapid rebound in demand once the economy returns to health. In the five years to 2017, industry revenue is forecast to grow.

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