Bank of America: Generation X and Baby Boomers Are the Only People Who Can Afford to Eat at Fine Restaurants

The bank looked at the restaurants that customers were choosing. economic instability.

Low-income households have been showing “cracks” in their spending for some time—Citigroup Inc. CEO Jane Fraser said she had witnessed the phenomenon as early as October 2023.

The warnings also came from Bank of America CEO Brian Moynihan himself, who Fed warns against over-stimulating consumers by maintaining the base rate at two decades high of 5.5%.

New research from Charlotte-based Bank of America shows that consumers across the spectrum are increasingly choosing eat in more convenient, less expensive places—reversing a trend that emerged last year.

“Over the past six years, consumers have shifted the majority of their restaurant spending to upscale restaurants, taking market share from both upscale and low-cost restaurants,” economist Joe Wadford wrote in a note. Luck“But this trend has reversed since the fall of 2023, when the share of casual restaurants increased, while the share of fine-dining restaurants decreased and standards remained flat.”

Wadford defines restaurants into tiers: value, standard and upscale, based on the average income of customers who frequent those establishments.

“For example, restaurants with the lowest average income customers are classified as ‘value class’, which in our view may reflect restaurants with the cheapest menus,” he added.

Citing internal transaction data, Wadford noted that growth in the number of customers spending at premium locations was slowing (down about 5% from a year ago) while value establishments grew about 5% year-on-year.

Wadford points out that the change in perspective has a major driving force.

“This trend is being driven by young consumersbecause they are saddled with more financial obligations and face rising costs, while their disproportionately low share of high-end restaurants may be due to their preference for quantity over quality,” the analyst wrote.

BofA found that Gen Z—those currently between the ages of 12 and 27—are the least likely to eat at a fine restaurant.

While Gen Z will account for about 18% of restaurant traffic by June 2024, the majority of their visits will be to upscale restaurants (20% of total customers), followed by value restaurants (13% of total customers). “Younger generations are disproportionately underrepresented among customers who spend a large portion of their restaurant budget at upscale restaurants,” Wadford said in his note.

Millennials—ages 28 to 43—eat out more than any other generation and make up more than 30% of customers. However, they also now favor standard and value restaurants, making up about 27% and 34% of customers in each category.

This trend is starting to change among older generations with Gen XBaby boomers and traditionalists both make up a higher percentage of the upscale customer base than the average restaurant customer base.

Interestingly, Gen X — ages 44 to 59 — makes up a slightly higher percentage of high-value customers than luxury customers (29% vs. 28%), but are still more likely to dine at high-end establishments than their Millennial and Gen Z counterparts.

Meanwhile, Baby Boomers – ages 60 to 78 – and the Silent Generation – ages 79 to 99 – prefer to dine at more upscale establishments, with about 40% of customers at these restaurants coming from the older two generations.

Skip service

Wadford’s note also points out that as the value chain has risen, change has taken place further down the value chain. Full service restaurantFull-service restaurants (FSR) are establishments where food is ordered and brought to the table, and then the bill is paid.

Limited-service restaurants (LSRs) are becoming more common—establishments where customers pay before eating and may then have to bring their own food to the table.

BofA card data shows that, unsurprisingly, demand for both LSR and FSR fell when the pandemic began, with FSR recovering more slowly because people couldn’t stay home.

But even when compared to pre-COVID averages, LSRs maintained a higher-than-expected market share of around 53%, while FSRs fell below pre-COVID averages, to between 42% and 43%.

“One reason consumers are shifting toward limited-service restaurants may be inflation,” Wadford noted. Consumer Price Index (CPI) data from the Bureau of Labor Statistics shows that prices at these restaurants are rising compared to June 2019 levels, but not as fast as at full-service restaurants.

“So consumers are choosing more convenient options, but Are they choosing cheaper options? It seems so.”