Until the early 2000s, it was all about the baby boomers, born 1946-1965. The 49-68-year-olds drove restaurant and lodging prosperity with excessive discretionary spending. Hospitality companies that marketed to the boomers' peak spending years saw increases in sales and market share.

Now, aging baby boomers' spending habits have changed with impending retirement. Priorities have evolved from consumption-driven to conservation of capital resources. This is seen by early-bird specials and happy hours that have become popular with this demographic.

This is impeding casual restaurant chains such as Red Lobster, Olive Garden, Longhorn and Outback from being considered "hip" with the millennial/Generation X clientele. The younger group spends more money and eats out more frequently. Chains that built business models around the baby boomers' partialities are now struggling to attract a younger clientele, according to recent research by Morgan Stanley.

Fast casual restaurants are preferred over casual restaurants with the millennial (born 1981-2000) and Gen X (born 1966-1980) groups. The next time you are at Panera Bread, Five Guys Burgers or Chipotle, observe the demographics of the patrons. These groups are entering their peak spending years.

Observe the graph below. Savvy lodging and restaurant owners should heed the sheer numbers and buying strength of these two demographic groups in order to profit from their upward trending.

Morgan Stanley
Core casual dining customers are aging while core fast casual users are entering peak spending years.

However, even with peak spending, people are eating out less than in years past. NPD Group reports that the average American eats out only 74 times per year — roughly 1.4 times average per week.

Millennial and Gen X patrons look for an "experience" when eating out and traveling. Organic and high-quality foods are also preferred by this younger demographic. Events at hotels and common lobby areas for socializing are preferred. Restaurant chains prospering from this trend include Starbucks and Chipotle, which have 40 percent of customers from the millennial and Gen X generations.

In addition to fast casual dining, what else does this 18-34 year old age group enjoy?

  • Hotel stays and high-end experiences
  • Gaming (online and social sites); casinos are questionable
  • Buying online
  • Organic and healthy foods
  • Athletics (activities and leisure apparel, code word "athleisure")
  • Value/price discounters

Marriott Hotels and Resorts, the venerable hotel chain, upped its marketing and revamped the hotel experience to attract millennial and Gen X customers. Younger focus groups provided input on a variety of topics such as room size, eliminating bath tubs in favor of high-end shower/spas, room layout, size of beds, big-screen televisions, eliminating bed spreads, and even getting rid of desks since the younger generation prefers laptops.

Marriott is targeting 60 percent of its room sales to the millennial and Gen X groups. In addition to Marriott, Hilton, Starwood and other proactive lodging companies should see higher profitability as the millennial and Gen X groups appreciate higher-end experiences and are more mobile. Each of these chains offers a variety of hotel brands and experiences at different price points. This attracts not only the higher-end patron, but also those that are value-driven.

Don't just think that marketing to the millennial and Gen X group will insure your company's profitability. The Generation Z group (born 2001-2014) will have its own characteristics as it comes into peak spending years. Staying abreast of trends and current hot buttons for this upcoming group will help you remain flexible and profitable.