Though dining-out frequency in the U.S. restaurant industry is finally showing signs of stabilization, rising food costs, liquidity issues due to recession-ravaged company balance sheets and a level of consumer frugality that still has not abated threaten the industry's fledgling recovery, according to a new study by AlixPartners LLP, the global business-advisory firm.

According to a consumer survey conducted in late March as part of the AlixPartners' study, diners say they expect to spend about $11.60 per meal at restaurants over the coming 12 months. That is down 21% from the $14.70 per meal consumers said they spent in pre-recession 2008 in a similar poll last year and down about 4% from the $12.10 in average meal price consumers say they spent in 2009.

"This continuing price sensitivity illustrates a chasm between pre- and post-recessionary consumer expectations," said Andy Eversbusch, a managing director at AlixPartners and head of the firm's Restaurant & Foodservice Practice. "It is, by some measures, due to what we dub the 'Subway Effect,' which has led to a jump in the number of consumers who anticipate spending $5 or less per out-of-home meal. In our survey, 16% of consumers expect this price range to represent their average meal spend, up from 12% last year."

Despite tightening wallets, consumers are more likely to go out to restaurants in 2010 versus last year, indicating some stabilization in at least traffic. According to the poll, 30% of the 1,000 U.S. consumers surveyed say they anticipate eating out less frequently, down markedly from the 48% who felt this way last year. Some 58% say they will eat out about the same amount of times, up significantly from 40% in the 2009 poll. About 12% say they will eat out more, on par with last year's survey.

AlixPartners' comprehensive study of the restaurant industry examined the financial stability of the industry's major sectors, including quick service, fine dining, fast casual and casual.

"Despite some stabilization of late, the restaurant industry is by no means out of the woods," said Eversbusch. "Sales will continue to be pressured by growing price sensitivity among virtually all consumers, regardless of the types of restaurants they visit. Meanwhile, we predict that food commodity prices, whose record lows provided a 'pseudo bailout' to the industry in 2009, will rise substantially going forward, so the operating efficiency of many restaurant players will be severely tested."

Before consumers increase their average spending on dining out, they say they want to see signs of economic recovery and better value for their dollar, according to AlixPartners. Though the frequency of restaurant trips is expected to increase overall, those who anticipate dining out two to six times a week dipped to 23% in this year's poll, from 27% last year. That is particularly bad news for quick-service restaurants, as consumers also say they plan to make at least one less trip a month to fast-food chains (5.1 times a month over coming 12 months, versus 6.4 visits at this point last year).

"A dip in breakfast traffic continues to plague the fast-food segment," said Adam Werner, a director at AlixPartners and a co-author of the study. "According to our analysis, breakfast sales correlate closely to the country's employment levels. In the fourth quarter of 2009, breakfast sales dipped dramatically, moving in the opposite direction of the unemployment rate, which spiked in that timeframe. This remains a critical factor to watch as we move deeper into 2010."

Another emerging factor affecting fast-food demand is the competitive inroad being made by convenience stores. Some 9% of consumers cite the availability of ready-to-eat meals from such stores as a reason for dining out less, as opposed to the negligible number of consumers who said that in 2009. According to the study, foodservice is the fastest-growing and most profitable category for convenience stores today.

Among consumers who plan to spend less in restaurants this year, the vast majority cited coupons and the selection of less-expensive eateries as the most popular ways to save money when dining out. There also was a marked dip in the number of respondents who cited skipped meals as a factor -- 17% in AlixPartners' 2009 survey as opposed to 10% who said they planned to skip meals this year in order to cut restaurant spending.

The study also examined the industry's financial stability and balance sheets. Sales growth for the industry hit a nadir in September 2009, when year-over-year sales dipped 1%. Total industry sales for full-year 2009 were $566 billion, down from $570 billion in 2008. According to industry estimates, industry sales are expected to rise to $580 billion this year.

Earnings were also hard it in 2009. QSRs, in fact, saw their first decline in earnings (before interest, taxes, depreciation and amortization) this decade, with a 48% drop. EBITDA in the fine dining sector fell 75%, reflecting the impact of a significant drop-off in business travel. Fast-casual and casual dining saw EBITDA drops of 27% and 26%, respectively.

More than half (54%) of the 87 restaurant and foodservice industry companies studied by AlixPartners now face liquidity risk, versus 40% in the firm's study of a year ago and 25% in "average" years. The most common factors straining the industry, according to the study, are debt load, overall segment health, weak value propositions and limited operational excellence.

"In today's still-tough environment, the smartest restaurant industry competitors will undertake both a makeover and a diet," said Adam Fless, also a co-author of the study and a director at AlixPartners. "Given continued consumer price sensitivity today, a diet reining in procurement and operational costs is essential to offsetting the steady ramp-up both in commodity prices and wages. But companies must also make over their operations to provide the best menus, ambience and service possible. They also need to look overseas, where growth today is strongest, including in China."

For highlights of the study, go to: .

From the May 10, 2010, Prepared Foods E-dition