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    MARKET EDGES

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The two pie charts pictured, which illustrate category spending as a percent of total personal consumption expenditures (PCE) for 2004 and 2008, led me to two conclusions: 1.) People need to eat and 2.) Casual dining operators are highly responsible for their current weakened condition.
  • As you can see in the charts, as energy, health care and housing costs have grown increasingly more expensive, they have eaten up a larger percentage of the consumer's spending. Over the same time period, however, food purchased at grocery stores and purchased meals and beverages have held relatively stable. Consumers are cutting back in other discretionary segments, such as autos and clothing/shoes, in order to maintain their ability to eat.
  • At first glance, I was surprised to see that the percent of the consumer's dollars allocated to dining out has stayed level at 7% relative to what we have all witnessed within the casual dining segment. Casual dining traffic trends have decelerated every year since 2004, turned negative in 2006 and have remained negative every month since February 2006. The disconnect between these two data points stems from the fact that the PCE trends do not account for the over supply of casual dining restaurants. Demand has remained at 7%, but supply (until just recently) has rapidly accelerated.
  • While people needing to eat has helped restaurants thus far even as consumers start to cut back on other discretionary purchases, consumer spending patterns could still get worse. As Keith McCullough pointed out on his portal yesterday, despite people thinking that the worst of the U.S. consumer has been discounted, U.S. consumer spending has remained positive for 64 consecutive quarters.