Economy brings restaurants challenges
March 10, 2008
Restaurants are dealing with stresses from all sides this year as the U.S. economy continues to struggle.
According to the Technomic, a group that researches the food industry, sales at many U.S. restaurants, excluding McDonald’s, have declined by nearly 4 percent since 2006.
David Swenson, associate scientist in economics, studies how businesses change and react to different kinds of stress.
Swenson said family budgets, and therefore discretionary income, are being squeezed due to high energy costs. Food costs have also increased sharply in the last year. These elements all influence the restaurant industry.
“If you think of a household’s income, if something goes up, something has to go down,” Swenson said.
These decisions mean families aren’t indulging as much in nonessential activities – such as eating out.
People seek cheaper alternatives to those activities, Swenson said -so they tend to go to fast food restaurants instead of more expensive dining establishments.
“The whole dining and drinking industry is very competitive,” Swenson said. “Those kind of services truly, truly depend on how the economy is doing.”
Swenson said businesses that are having trouble now are going to want to cut their costs, but they’re “kind of caught in the middle” because the prices of commodities such as grains have increased.
“They can’t raise their prices enough to cover increased cost,” Swenson said, “so businesses are going to have to be very careful.”
Grains, including wheat, rice, soybeans and corn, have doubled to tripled in cost over the past year.
The causes of this trend are many. Swenson said the fact that some corn is being diverted to energy production has raised corn prices.
There has also been a worldwide wheat shortage, and the growing economies of India and China are enabling those countries to demand more food products.
Matthew Goodman, city councilman, owner of Smiles & Gyros and co-owner of Flying Burrito, 2712 Lincoln Way, said his businesses have not been a part of the national trend of lower sales.
Goodman said the fact that Smiles & Gyros and The Flying Burrito serve younger people, who have more discretionary income, provides his businesses with a sort of insulation from the national trend.
However, he said the state-wide increase in minimum wage and the higher prices of goods have significantly impacted his businesses.
While they pay their employees more than minimum wage, they’ve had to raise wages even more to be competitive in the business.
Haemoon Oh, associate professor of apparel education studies and hospitality management, said the fact that restaurants are suffering along with the general economy is typical.
“The restaurant industry is traditionally known to be very sensitive to the economic situation,” Oh said.
Oh said he thought it was likely that restaurants will probably lay off employees and try to reduce costs as a result of the trends in the industry.