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The Demand for Food Away from Home: Full-Service or Fast Food?
Hayden Stewart, Noel Blisard, Sanjib Bhuyan, and Rodolfo M. Nayga, Jr.
Agricultural Economic Report (AER-829), January 2004
It has been well documented that Americans, as they grow more
affluent and time-stretched, spend more dollars on food away
from home than at home. Fast food and full-service restaurants
must continually jockey for this revenue. The fast food segment
had once grown accustomed to an ever-increasing market share.
With those days apparently behind them, some fast food restaurants
are now offering more of the variety of items and heightened
amenities typically associated with full-service establishments.
This report examines how the demand for food away from home
is changing, how these changes could affect the size of the
full-service and fast food segments, and how restaurants might
respond to these shifting demand signals. U.S. households are
becoming, on average, richer, older, smaller, more ethnically
diverse, and more likely to contain single people or multiple
adults without live-at-home children. These changes each have
foreseeable impacts on the demand for food away from home, the
subsequent offerings of foodservice establishments, and ultimately
the diet and health of all those going out to eat.
What Is the Issue?
Both full-service and fast food restaurants are increasing
the variety of foods and services available to their customers.
Applebee's Neighborhood Grill & Bar, a full-service restaurant,
for example, reports that new and significantly improved menu
items account for over 50 percent of its offerings. Even among
larger fast food chains, such as McDonald's, the situation is
similar. Restaurants affiliated with this pioneer of the limited-menu
concept can now offer over four dozen items on their menus,
including a fruit and yogurt parfait as well as a grilled chicken
salad. What is driving these improvements?
Although many factors could be contributing to the evolution
of the foodservice industry, a sustained shift in consumer demand
appears to be the primary force. A change in demand can alter
the competitive dynamics of a market. If consumer demand is
shifting in favor of the foods and services traditionally offered
by full-service restaurants, full-service restaurant companies
will be encouraged to operate more outlets offering more variety
and dining amenities. Fast food restaurants might also introduce
many of these same foods and services themselves. So, in order
to understand why restaurants are adjusting what menu items
and services they offer, it must be asked what consumers are
demanding when they eat out.
How Was the Study Conducted?
Economic theory and household survey data were used to update
existing studies showing how rising income, shrinking household
size, and an aging population might influence household expenditures
at full-service and fast food restaurants. In addition, we examine
the significance of the changing structure of American households.
Traditional families, defined as a married couple with children,
accounted for 30 percent of all households in 1980. However,
they totaled only 24 percent of all households in 2000 and may
further decrease in share to about 17 percent by 2020. By contrast,
single-person households increased from 23 percent of all households
in 1980 to 26 percent in 2000, and may reach 29 percent in 2020.
Household survey data were used to quantify the relationship
between a household's spending at each type of restaurant and
its demographic characteristics, including its structure, income,
age, and race. The resulting statistical model enables us to
simulate how much a "typical" household spends on
fast food and full-service meals.
The statistical model was next combined with projections from
the Bureau of the Census on how the demographic characteristics
of American households are likely to change. The results of
this exercise indicate how the demand for foodservice may change
under these projections and assumptions about the future behavior
of consumers and firms.
What Did the Study Find?
Simulations indicate that, between 2000 and 2020, per capita
spending could rise by about 18 percent at full-service restaurants,
versus about 6 percent for fast food. In other words, both segments
are likely to grow, but trends favor full-service restaurants
relative to fast food establishments. This suggests that, while
consumers will value convenience, they will also want meals
with more variety, amenities, and recreation traditionally associated
with full-service restaurants.
Not surprisingly, an assumed increase in incomes will have
the largest impact on the away-from-home market. Members of
a higher income household spend more money away from home, especially
on full-service dining occasions that are richer in variety
and other services. However, the changing structure of households
will also have a major impact. Both single-person households
and households with multiple adults but no children tend to
spend more money per capita—versus a traditional household
with children—in both market segments. To be sure, not
all anticipated developments in the population bode well for
each type of restaurant. The aging of the American population
will dampen the demand for fast food.
Our simulations show how the demand for foodservice is changing.
Not only could these developments affect the quality of people's
diets and, ultimately, their health and well-being, but they
will likely affect the structure of the foodservice industry.
Restaurant companies and their suppliers will be encouraged
to cooperate to ensure the variety of foods and services demanded
by consumers. This study lays a critical foundation for future
analyses of such questions.
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