Recession threat not necessarily doom for restaurants, food retailers

Posted by Daniel Palmer on 1st May 2008

With concerns of an economic slowdown in Australia due to worries about the financial state of the US, rising interest rates and spiralling inflation, restaurateurs could be forgiven for thinking tough times are about to take hold. As the average restaurant meal costs almost three times more than a home-cooked meal it would be expected that in times of financial concern the public may shy away from restaurants. An economic slowdown or even a dreaded recession, however, is not usually as damaging to restaurants as one might think.

Figures of restaurant visitors indicate that during a recession the number of restaurant visitors can still increase; indicating that convenience, the enjoyment of a good night out and higher quality food may override the hip-pocket-nerve. In Australia the growth in sales is expected to be lower in the next few years than the last five but growth is still anticipated. The primary concern, though, is the threat of rising costs outweighing rising sales figures.

Restaurant and Catering Australia CEO John Hart recently revealed to AAP that spiraling food and wages costs couple with rising renting expenses were threatening many small businesses.

“The increase in revenue is only offsetting other rises, the average restaurant business is in a worse place now than this time last year,” Mr Hart was quoted as saying by AAP.

Past data worldwide suggests that people do not stop eating out just because of worsening economic conditions. For example, the number of restaurant visitors in the US during the last significant recession (1990-91) actually increased by 1.5% and 1% during the two years. These figures were admittedly lower increases than the next eight years (where visitor numbers increased between 1.5 and 3.4% each year) it does indicate that restaurants can survive during times of economic turmoil.

Other food retailers are in a similar situation with rising costs threatening to dampen the benefit of rising sales. The positive for retailers in the food industry is that consumers will always require food, making the industry more recession-resistant than most other industries. Escalating costs, however, are not helping retailers and success in the difficult times will require an increased focus on efficiency and stricter budgeting.