After all, for all of its challenges, a recession may present new opportunities for savvy operators.“Somebody always wins in a downturn,” says Matthew Mabel, president of consultancy Surrender Inc. “The strong definitely can get stronger. The other note, from Andy Barish at Jefferies, struck a less alarmist tone. But he suspects price sensitivity may push them to think twice about luxuries like third-party delivery. The last time the restaurant industry suffered declining sales in all four quarters of a year was 2009, right after the financial crisis and the start of the Great Recession. It’s especially important for restaurants to meet their customers’ basic expectations of service, cleanliness, and food quality during a downturn.He doesn’t expect to see as much in the way of value wars during the next recession. "We have reduced our earnings growth expectations by nearly half across our casual dining coverage as we expect restaurants within this space to feel the most impact from rising labor headwinds and slowing commodity tailwinds given the structural disadvantages within these predominantly company-owned business models and increasing competition within the category as well as other category players," he says. His picks: Dave & Buster's (two-thirds of its revenues are from games and bar businesses, which have higher average gross margins), Fogo de Chao (tipped employees provide both back and front-of-house duties, putting overall labor expenses in the low 20% range) and Panera Bread (which has made technology investments to help get more productivity out of its labor force).Maggie McGrath is an associate editor at Forbes and the editor of ForbesWomen, the Forbes vertical dedicated to covering all angles of female entrepreneurship and theMaggie McGrath is an associate editor at Forbes and the editor of ForbesWomen, the Forbes vertical dedicated to covering all angles of female entrepreneurship and the most successful women in business. But savvy operators will grow more creative with their loyalty programs, social media, and delivery to hold onto customers.“This is a different generation than 10 years ago, and they’re going to respond to things a little differently,” Powell says. “It’s not just about ‘I’m going to a restaurant for a meal.’ It’s going to a restaurant with friends or going for a special Instagram opportunity.”He says the 2020 presidential election may hamper consumer confidence, yet many economists don’t expect a recession until 2021.
“It’s coming,” he says. That will make consumers less optimistic and more careful with their spending.“I think that recession is not a near-term threat as of now, but that could change very quickly,” Fernandez says. “Sometimes restaurant operators wait until the recession happens, and then their ability to adjust is very limited. She has worked on nearly every list Forbes puts out and has edited the 30 Under 30 Food & Drink list, the Just 100, and the World's Most Powerful Women.
The restaurant industry is frequently the precursor for a market correction, an early harbinger of a bear market or even a recession to come. The weak may hurt or go away. Why would you jump ship now?”On the consumer front, he thinks the 85-unit chain remains well positioned.
But that same order on a third-party platform, with its higher menu prices and added service fees, Friedman says, can cost more than $30.“And I think people are going to start to say, ‘I could go get it and save $10. "From our restaurant-industry only perspective, when industry category comps decelerate simultaneously by -2% to -3% (like in the second half of 2000, first half of 2007 and now in the second quarter of 2016), then the lower 'new-normal' same-store-sales trend has lasted for at least two years -- typically the year-before and year-of a U.S. recession," he writes. Before coming to Forbes, Maggie worked with TODAY show financial editor Jean Chatzky. Friedman suspects those brands who have transitioned more of their business to third-party will have a hard time when the economy sours.“I completely believe that those people who have made third-party a core part of their businesses are ultimately going to feel the pain,” he says, noting that Grubhub is already struggling with declining orders. "Our sense is that the amount of supply that has come into the market over the past few years is beginning to impact traffic trends, most notably in Texas and Colorado, where conditions have deteriorated with slower energy-related activity and supply growth," Barish says. Slower job growth and layoffs could help free up badly needed workers and relax wage pressure on employers. Starbucks CEO Kevin Johnson told CNBC in late August that the coffee giant hadn’t seen any signs of economic weakness. “I think people are overspending for convenience right now.”Wing Zone has been careful to limit the share of sales coming from third-party services to about 15 percent of the total pie. And within this environment, Barish sees casual dining chains -- like The Restaurant Industry. “But the economic expansion is now over a decade old, and it’s not surprising that the growth rates are moderating and will continue to moderate next year.”“The classic millennial is all about experience,” says Kristi Turner, CMO of restaurant management software company Compeat. “We’re looking at it that way just from an industry perspective, because this can’t last.”Wing Zone has been careful to limit the share of sales coming from third-party services to about 15 percent of the total pie.That’s telling, as the foodservice industry is among the first to feel the pain of a recession—and the first to know when the economy is finally climbing out of one, Powell says.
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