Retail bifurcation intensifies between the haves and the have-nots

A tale of two retails

There’s no question we are in a very different place economically than we were a year ago. GDP has declined 1.6% and 0.6% in the first and second quarters, respectively, after pronounced growth in 2021. Consumer confidence is down roughly 2% from August 2021. Finally, and most importantly, prices are higher. The CPI is up 8.3% over the last year, with particularly big hits to the price of gas, transportation, and food – items consumers rely on. With Americans spending 25.6% more on fueling their cars and 11.4% on buying groceries than they did a year ago, there has been considerable trepidation in consumer outlook and a shifting of spending. Retail sales have managed to stay afloat rising nominally most months this year, and slightly eking out the effects of inflation with 9.1% year-over-year growth in August.

Inflation is not having a uniform impact, however. Low- and middle-income earners are much more greatly impacted than high earners. As a result, there has been a shift away from some discretionary spending towards necessities, and a move to discount retailers which sell these goods. For instance, Costco and Grocery Outlet saw strong growth in comp sales, while discretionary discounters like Kohl’s and Burlington saw comps decline in their latest quarter. In comparison, premium retailers are seeing robust growth in sales. Lululemon’s second-quarter earnings soared 25%, and luxury retail conglomerate, Capri Holdings (which owns Michael Kors, Versace and Jimmy Choo) saw revenue climb 8.5% year-over-year.

Service spending surges

Americans are clearly interested in returning to normal, going out, dining in a restaurant and working out in person. Spending on performing arts rose 86.3% from Q2 2021 to Q2 2022. Accommodation, movie and amusement park revenues all rose over 30% year-over-year. And F&B spending jumped 17.2% for the same period. 

Consumers shift from goods to experience

Consumers return to dining out

According to data from both Yelp and Open Table, dining out is back to pre-COVID levels.  Searches for reservations on Yelp were up 107% from Q120 – Q122. Searches for outdoor seating were up 1060%, while searches for indoor seating – which had fewer takers during the height of the pandemic – soared 6,360%. Clearly, diners feel more comfortable now being close to other guests at a restaurant.

We’re also seeing a very interesting trend in the types of F&B businesses that are seeing the biggest growth in openings over the last year or so (i.e. January to April 2021 vs. 2022). Less well-known concepts like conveyor sushi and supper clubs saw openings soar 200% - 500% between the first four months in 2021 and 2022. Buffets – for whom the death knell appeared to have rung in 2020 – saw openings jump 62%. And, of course, alcohol-related places like brew pubs, gastropubs and breweries, are all seeing solid double-digit growth. 

One such example is a new restaurant that opened near me in Boca Raton, called Sixty Vines. It’s a wine-on-tap concept with 6 locations in Texas, Florida and Tennessee. The idea is that it keeps the wine very fresh and it lets diners sample a very wide range of wines in small quantities, pairing it with good food. I can’t wait to try it myself later this month. 

Inflation on the menu at restaurants

It’s not all sunshine and roses for the restaurant industry, however. Inflation is hard here too, as well as staffing shortages. For restaurants, review mentions of inflation on Yelp was up 47% from Q2 2020. 

People are “yelping” about inflation…

Mentions of inflation in Yelp reviews, Q2 2020 - Q2 2022

Diners have also been complaining about “shrinkflation” – where the prices stay the same, but food portions are smaller – particularly more affordable fare like hot dogs, burgers, and pizza.

More than 13 million diners were seated via Yelp in the first quarter – a 48% leap from the previous year. With staffing shortages still an issue in the restaurant industry, combined with more people dining out, diners are also complaining about wait times. There was a 23% year-over-year increase in reviews mentioning long waits in the first quarter, and a stunning 229% increase in reviews mentioning short staffing. Restaurants are responding by adjusting their opening hours and menus, and automating their check-in processes.