Economy hits restaurants hard

The year 2008 won’t be remembered as a good one for the foodservice industry. Rising input costs in nearly every market combined with a tightening of credit in the financial sector brought about a rapid decline in sales for restaurant operators.

Sales for the total foodservice industry were projected at $552 billion – with full service restaurants seeing $181 billion and quick service restaurants seeing $157.5 billion in sales, according to the National Restaurant Association’s 2009 Restaurant Industry Forecast. For 2009, the association expects an increase of 1 percent in the full service segment and an increase of 4 percent in quick service restaurants. Although sales are expected to increase slightly, when adjusted for inflation the outlook isn’t as bright. Real growth change for full service restaurants will be down 2.5 percent and quick-service restaurants will see little to no growth. This comes after years of sustained growth – more than 4 percent a year – in every major segment since 2005.

But the economy posted the worst numbers in years in December, and the foodservice industry also saw losses. Employment is one indicator of the segment’s health, and the national unemployment rate was 7.2 percent in December, a 25-year high. Eating and drinking establishments – which represent about 75 percent of the foodservice industry – ended 2008 with six straight months of job losses with a total of 104,000 jobs eliminated. That’s the first year since 1991 that employment at restaurants has been negative on the year, and more job losses are expected in 2009, according to the NRA forecast.

The job market is expected to impact the foodservice industry from a sales perspective as well. Unemployment is projected to rise another 2 percent in 2009, eliminating three million jobs nationwide. Personal disposable income will increase slightly – 0.2 percent adjusted for inflation – the smallest increase in disposable income since 1974, the report states.

Foodservice operators also have to fight rising input costs. It’s an issue that has affected their entire supply chain – from growers to processors to distributors. Fuel prices hit all-time highs in July then steadily dropped to inflation-adjusted record lows in December. The price spike caused many distributors and processors to look at fuel-saving equipment and more efficient routes and delivery times, and are continuing those cost-saving programs even after fuel prices dropped. But foodservice operators can expect to spend more for products as a result of an 8 percent increase in wholesale food prices in 2008, the highest increase in more than 30 years, according to NRA. The association projects a 3 percent increase in food prices in 2009, which will in part lead to a 4 percent increase in menu prices. That follows an increase in menu prices of more than 4 percent in 2008, more than double the increase in the average consumer price index. Consumers will increasingly look for value at full service and quick service restaurants, according to the NRA forecast.

Despite the gloomy outlook, there still are some bright spots. According to a consumer survey conducted by NRA in November, 68 percent of adults said restaurants offer flavors or varieties that can’t be duplicated at home. Two-thirds of the respondents also said the quality of food they receive at restaurants is higher than it was two years ago – and more than half said the quality at fast-food restaurants was higher than two years ago. And 39 percent responded that eating out was just as cost-effective as making a meal at home and cleaning up.

Foodservice operators and suppliers can succeed in tough economic times, but they have to work together and focus on their strengths. According to the consumer studies, restaurant-goers are looking for a diverse menu of high-quality foods at a low cost that can’t be replicated at home. Any establishment that figures out how to provide that is sure to weather any storm.



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