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Restaurants and the “R-word”

2 min read

Restaurant and Foodservice

Markets continued to fall Monday as investors reacted to a historic downgrade of the U.S. credit rating, sparking concerns that the economy is headed into another recession before many have recovered from the last one. Nobody wants to think another recession is on the horizon, but economists began broaching the possibility in earnest after last week’s massive market slide.

The last time around, eateries closed; others moved from fine dining to less-pricey casual concepts; casual chains drove traffic by focusing on deals, which customers only recently stopped expecting; and the industry saw the rise of Groupon and other daily-deal websites, which drove bargain-hunting traffic without always leading to long-term business gains.

Even before markets slid last week, restaurant companies were struggling with balancing still-tight consumer budgets with margin-squeezing higher commodity costs. Many were in the process of raising at least some menu prices. Given that, it’s likely many restaurants and chains would have much less wiggle room to offer recession-era promotions this time around.

Some chains are already feeling the fallout from higher prices. Last month, P.F. Chang’s China Bistro said sales were down at its flagship restaurant and Pei Wei Asian Diner. The company said it was cutting its forecast for the rest of the year, as guests shied from spending after menu prices increased 2% this year, Reuters reported. Time will tell whether other chains that are increasing menu prices — including Chipotle Mexican Grill, which said in June that it would raise prices for the first time in three years — see a similar drop.

Eateries have had several years of learning how to do more with less, and it’s likely those lessons will help if tougher times return. In addition to finding ways to cut costs and increase productivity, restaurants also have had time since the last recession to define value propositions that prove popular with recovery-era consumers who are still wary about spending. In a Fast Casual story this summer, Food IQ President Phil Daniels wrote about a value proposition that has emerged since the recession, driving high-end concepts into more casual territory and spurring quickservice and fast-casual concepts to add more premium items.

So, what lessons have restaurant companies learned from the recession, and how will they guide eateries should we have to live through another? Share your thoughts in the comments.