During a recession, limited-service restaurant sales may grow as customers seek out more affordable dining options such as fast food, whereas full-service restaurant sales are more likely to decline due to high menu pricing.
Restaurants: Can They Survive the Recession?
Restaurants have seen their fair share of ups and downs in the past. While many independent businesses have closed their doors with little possibility of reopening, our statistics rebounded rapidly at Wayback Burgers, and comparative systemwide sales were actually up year-over-year in the third quarter. Here are some strategies and lessons learnt that can help restaurants thrive amid economic downturns:
Prior to the Great Recession, the restaurant business was rather outdated. Few restaurants used technology in any meaningful way other than rudimentary websites. Businesses began to recognize the value of leveraging technology after the crisis, whether it was owing to digitally informed consumers’ need or eateries wanting to differentiate themselves. Brands began to develop their own apps so that customers could more quickly access menus and place orders. Self-ordering kiosks began to appear. Apps for third-party delivery have grown in popularity.
During a recession, do food costs fall?
During a recession, food prices are usually quite steady. If the recession is severe enough to cause deflation (a drop in the overall price level), food prices may drop by a similar amount.
US Deflation 1929-33
For example, during the Great Depression (1929-1933), prices fell steadily. The reason for this was a considerable drop in aggregate demand. Due to bank failures, the money supply in the United States has also decreased.
The pricing level in the United States. Between 1930 and 1933, there was deflation (negative inflation) a drop in the price level.
Deflationary pressures in recession
How a downturn in pricing could be caused by a recession. A decrease in the price level is caused by a decrease in aggregate demand (AD). Prices would tend to fall as a result of this.
Food prices more often stable than luxury goods
Food has a very low elasticity of demand in terms of income. When income declines during a recession, we cut back on high-ticket items like vehicles, but we continue to buy food (unless we are really destitute). As a result, staples like bread and rice will continue to be in high demand. As a result, corporations may feel less pressure to lower food costs than they do for other items.
In a bad recession, you may anticipate a price war to break out in high-end electronics or automobiles, but a price war in food is quite unlikely.
However, if the recession is severe enough and benefits for the unemployed are in short supply, even food will witness a drop in demand (like the Great Depression)
What businesses do poorly during a downturn?
The retail, restaurant, and hotel industries aren’t the only ones that suffer during a recession. During periods like these, industries like automotive, oil and gas, sports, real estate, and many more face significant decreases. Although the recession brought on by the coronavirus epidemic is unusual, many of these businesses have had difficulties in the past.
However, as we already stated, not all is doom and gloom. Certain industries have done a good job of riding the wave and adapting.
How does the food industry do during the recession?
The worldwide economy was severely impacted by the Great Recession of 2008. In many countries, GDP has declined and unemployment has soared, affecting industries, communities, and individuals. The recession had a global influence, albeit the severity and timing of the effects varied, with European countries being hit first and with larger consequences, while Asian countries were hit later and with smaller affects. The Great Recession has a wide range of health effects, including decreased self-esteem and an increase in cardiovascular and respiratory ailments. In several nations, there were also increases in infant and child mortality, as well as in perceived health and health-related quality of life, according to an analysis of the effects of the Great Recession on children. People in lower socioeconomic positions (SEP) may have been hit worse by the recession, expanding inequality.
The Great Recession may have impacted the food environment in a variety of ways. Food costs rose during the recession as a result of inflation and food corporations adjusting their marketing techniques to raise prices per unit of food and package content. During the recession, price reductions on products particularly processed foods also increased. These changes occurred in tandem with a decrease in household resources. This may have resulted in lower food expenditures and the affordability of nutritious food items, particularly among those with low socioeconomic status. For example, a research in Chicago contrasted low-income regions to more affluent ones and discovered that low-income communities had inferior access to healthful food. Although there is conflicting evidence regarding the effects on overweight and obesity, existing data points to a possible rise, particularly among those with low socioeconomic status.
Economic shocks may have various effects on nutritional intake, according to evidence from prior recessions. Although studies are conflicting, the 1997 Asian economic crisis appears to have had an impact on nutritional intake, with decreased calorie intake and changes in food consumption. The Mexican crisis of 1994 appears to have had a detrimental impact on nutritional intake, however there were differences in food consumption between rural and urban areas. In comparison to earlier recessions, the Great Recession is notable for its length and global reach, as well as its devastating effects on unemployment, GDP, and government budgets. It was also marked by a delayed recovery and, in Europe, a sovereign debt crisis that forced many governments to implement austerity measures. This occurred against a backdrop of increased ubiquity of ultra-processed food, which suggests that, due to the reduced cost of these items, the impact on nutritional intake may have been greater than in prior recessions. As a result, we hypothesize that the Great Recession had a significant impact on dietary intake, which justifies a thorough investigation. We wanted to look at the research on the effects of the Great Recession on children’s and adults’ food intakes, and see if the effects were more pronounced in low-SEP groups. We examined both as potential effects of the Great Recession, based on earlier evidence that supports both good and negative effects on diets and health. Because the Great Recession was one of the most severe economic shocks previous to the onset of COVID-19, our research can help policymakers safeguard public health during the current pandemic.
What impact did the financial crisis of 2008 have on restaurants?
The casual-dining sector saw the poorest results. Unlike fast-food restaurants, which offer dollar menus and limited-time specials, sit-down restaurants often levy a tip and charge much more for food. Customers are usually enticed to purchase expensive add-ons such as drinks or desserts.
The privately-owned parent company of the Bennigan’s and Steak & Ale franchises filed for Chapter 7 bankruptcy protection in 2008, owing to a reduction in sales and profits, as well as a plethora of choices for consumers in the bar and grill category.
Ruby Tuesday Inc., which saw its stock plummet by 85 percent, led the sector’s drop. Sales were down and remodeling expenditures were considerable, so the chain was struck severely. The index was also driven down by shares of Cheesecake Factory Inc., which fell 60% in 2008.
Fast-food franchises with lower costs and sit-down eateries that were deemed a good deal by frugal customers fared better.
McDonald’s stock increased about 5% after the company reported strong sales growth during much of 2008.
Darden’s stock increased by just over 1%. Small revenue growth at the business’s Olive Garden brand, which has a reputation among customers for being a good price and serving unlimited salad, aided the company.
Even corporations that performed well struggled in 2008 to maintain earnings growth. Commodity prices, notably grain, rose sharply, putting pressure on restaurant margins and forcing nearly all chains to boost menu prices to maintain earnings. According to the National Restaurant Association, menu prices increased by 4.2 percent in 2008.
In a downturn, what sells?
- While some industries are more vulnerable to economic fluctuations, others tend to do well during downturns.
- However, no organization or industry is immune to a recession or economic downturn.
- During the COVID-19 epidemic, the consumer goods and alcoholic beverage sectors functioned admirably.
- During recessions and other calamities, such as a pandemic, consumer basics such as toothpaste, soap, and shampoo have consistent demand.
- Because their fundamental products are cheaper, discount businesses do exceptionally well during recessions.
Which industry is immune to the downturn?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.
In a downturn, how do you make money?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
What happens to food costs in a hyperinflationary environment?
- Hyperinflation is defined as an economy’s rapid and unrestricted price increases, which often reach 50% per month over time.
- Hyperinflation can occur in the underlying production economy during times of war and economic turbulence, when a central bank prints an excessive amount of money.
- When basic supplies, such as food and gasoline, become limited, hyperinflation can create a price spike.
- Hyperinflations are uncommon, but once they start, they can quickly spiral out of control.