Why savings rate and disposable income impact restaurants

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Oct. 17 2014, Updated 1:00 p.m. ET

Savings rate and disposable income

The savings rate is the amount expressed as a percentage of disposable income that hasn’t been spent by a consumer. A the amount of income that a consumer puts aside—in a retirement account, stocks, 401(k), or money market funds—is considered savings. Disposable income is the personal income that a consumer has left after income taxes.

Interpretation

Personal disposable income has increased since January 1990. However, the personal savings rate has been volatile. The savings rate dropped sharply in 2013. It dropped to 5% year-over-year (or YoY). This could mean that consumers are spending more. This is positive for restaurants like Chipotle Mexican Grill (CMG), Panera Bread (PNRA), Taco Bell—under the umbrella of Yum! Brands (YUM), and Burger King (BKW). It’s also good for the Consumer Discretionary Select Sector SPDR (XLY).

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During the same period, the total revolving credit also increased to $853 billion in 2013—from $845 billion in 2012. This indicates that spending and consumption increased. A better measure of consumption is the Personal Consumption Expenditure Price Index (or PCEPI). We’ll discuss this in the next part of the series.

One good way to get customers to spend more at a restaurant is by increasing complementary offerings, sides, or combo meal upgrades. This can help a restaurant increase the average check. You can see an example of this in the Tim Hortons (or THI) series.

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