Big discounts boost eating out, but consumers still cautious - Capital Economics
UK Economics

Big discounts boost eating out, but consumers still cautious

UK Economics Update
Written by Thomas Pugh
Cancel X

The success of the Eat Out to Help Out (EOHO) scheme suggests that fears about the virus are not preventing activity. But as meals out only seem to be popular due to a heavy discount, consumers are still behaving cautiously. This restraint is part of the reason why we don’t expect consumption to reach its pre-pandemic level until 2023.

  • The success of the Eat Out to Help Out (EOHO) scheme suggests that fears about the virus are not preventing activity. But as meals out only seem to be popular due to a heavy discount, consumers are still behaving cautiously. This restraint is part of the reason why we don’t expect consumption to reach its pre-pandemic level until 2023.
  • The first week of the government’s EOHO scheme, which started on Monday 3rd August and gives a 50% discount on food and soft drinks up to £10 per head at many restaurants from Monday to Wednesday, has been a roaring success. The number of restaurant diners went from an average of 20% below last year’s level at the end of July to 20% above it by last Wednesday (5th August). (See Chart 1.) At face value, this suggests that our concerns that consumer spending will remain subdued for at least another two years might be overblown.
  • We have previously argued that the pandemic would damage households’ ability to spend as a rise in unemployment, despite the furlough scheme, and a drop in pay growth means that real disposable household incomes will fall by 6% peak-to-trough. (See here.) At the same time, households might be less willing to go out and spend and might prefer to build up their precautionary savings to protect against any future disruption to earnings. (See here.)
  • The more pressing concern, though, has been that fear of contracting the virus will keep consumers away from bars and restaurants. The Bank of England has flagged this as an area of concern saying that UK consumers were spending less than other countries at equivalent points of the recovery in July. And in a recent IPSOS/MORI poll, 64% of people said that COVID was a moderate or severe threat to them personally.
  • So the surge in the number of people dining out is comforting in that it suggests people are at least willing to venture out of their houses. And if consumers are willing to go back to restaurants in their droves, then they may not be too cautious about increasing other forms of social spending, such as in bars, cinemas and shops too.
  • However, the number of restaurant diners promptly dropped back to -20% y/y on Thursday 6th and Friday 7th August, when the EOHO discount was not available. Admittedly, it is reassuring that bookings didn’t drop back below -20% y/y, which suggests that the EOHO scheme isn’t just causing a shift away from meals from the weekend and people are actually eating out more. But the fact that they fell back so sharply indicates that people are still cautious and in some cases are only willing to spend when a big discount is on offer. Indeed, the drop suggests that, rather than fears about the virus, it is consumers’ ability and willingness to pay that are the real constraints on spending.
  • Overall, the success of the EOHO scheme suggests that consumers aren’t too scared of contracting the virus, which bodes well for spending on other social activities. But consumers still seem to be extra cautious about their spending. Indeed, consumer confidence remains well below its pre-pandemic levels. (See Chart 2.) As such, a full recovery in consumer spending is still some way off.

Chart 1: Restaurant Diners (% y/y)

Chart 2: EC Consumer Confidence (Balances)

Source: Opentable

Source: Refinitiv


Thomas Pugh, UK Economist, +44 7568 378 042, thomas.pugh@capitaleconomics.com