For many of us, this election is about voting against someone more than voting for someone. Americans are deciding between someone they don’t like and someone they don’t trust. The uneasiness about the election, combined with the current state of the economy, is having a tangible impact on the restaurant industry.
Historically, the state of the restaurant industry has been a precursor for the economy. The National Restaurant Association’s (NRA) monthly survey of restaurant operators predicted an economic downturn in 2007 prior to the recession with 40 percent of operators expecting economic conditions to worsen in the next six months. In the NRA’s September 2016 survey, 29 percent expected conditions to worsen and 52 percent expected conditions to stay about the same. Only 17 percent had a positive outlook.
We certainly aren’t predicting another recession, but current economic and political conditions are causing problems for restaurant operators. In fact, eight restaurant companies representing at least 12 chains have filed for bankruptcy so far this year.
Restaurants can overcome these challenges, but they need to be intelligent and proactive to succeed. Focusing on operations, especially employee training and food quality, is key in today’s economic climate.
The State of the Restaurant Industry
Consumers are concerned about the economy and unsatisfied with both of their presidential candidates. We’ve witnessed that when customers aren’t confident with the economy or the nation’s leaders, they tend to spend less. On top of that, earlier this year, spending for big ticket items like cars and houses increased. As consumer debt has risen, people have less disposable income to spend overall, including at restaurants.
Meanwhile, grocery store prices have decreased and grocery store sales are on the rise as more and more people choose grocery stores over restaurants. NPD Group found that in-store dining and takeout of prepared foods from grocery stores has risen by almost 30 percent since 2008. The average ticket in the restaurant industry has also been on the decline. When consumers do go out, they are pickier than ever and more concerting in their choices. The sales of carbonated beverages, for example, dropped for the 11th consecutive year, according to a 2016 Beverage Digest report.
Exacerbating this problem, the low unemployment rate and relative wage stagnation is leading to increased wages in the industry. Restaurants are paying entry level employees more because it’s hard to find talent. That means they also have to pay their proven employees more, which is a big hit on already eroding margins and ultimately the overall profit and loss statements.
How to Succeed in Today’s Economy
The state of the economy means restaurant operators need to perform better than ever. If you have a poorly trained crew or not enough crew members, you’ll soon see customers choose other concepts that offer better service. At Penn Station East Coast Subs, we’ve seen our system-wide sales rise again this year, but we have franchisees on both sides of the spectrum. Those who are strictly following the operations manual and carefully training employees tend to see strong sales growth, while those who aren’t hiring, training and retaining top talent are struggling more with their sales.
Customer are more discriminatory with their spending. Think back to the recession in 2008. Some concepts cut back on portion sizes or decreased the quality of their ingredients so that they could lower prices. Penn Station went the opposite route. We continued to serve our product at its highest level so that people could feel good about spending their money on a premium product. Now, consumers are again going out to eat less often and spending less when they do. We have continued to uphold the quality of our food, and so far it has served us well. For example, while soft drink sales are declining, our fresh squeezed lemonade sales have not been affected.
Restaurants can overcome this period of economic and political uncertainty by focusing on operational excellence. Hire good people, train them well and put out a superior product, and consumers will choose your restaurant to spend their dollars. No matter what happens on Nov. 8, excellent food and stellar service will allow a restaurant to succeed.