Kathy Willens/AP

Restaurants Get a Taste of Economic Downturn

October 14, 2008 09:57 AM
by Isabel Cowles
American restaurants are seeing a sharp decline in consumers and sales as the credit crisis continues.

Restaurants Hit by Credit Crunch

For the first time in two decades, the $550 billion restaurant industry is suffering from sluggish sales. Restaurant owners are being hard hit as credit lines for investment and operating costs dry up in the current economic recession. Increases in food and labor costs have also taken a toll on restaurant finances.

The current financial crisis has challenged owners of franchises and private establishments alike. Both have had difficulty attracting customers, paying employees and furnishing kitchens with the necessary tools and equipment. 

Aaron Allen, CEO of international restaurant-consulting firm Quantified Marketing Group, told Time magazine, “The credit crisis is having a devastating effect on nearly every segment of the industry … This is the death knell for a number of restaurant chains.”

Fast food and upscale fast food spots that don’t have wait staff may fare better than full-service establishments as they can maintain lower costs.

A recent survey found that 38 percent of consumers have scaled back on restaurant visits. Of those who do dine out, 28 percent skip appetizers or desserts, and 21 percent are consuming less alcohol.

Restaurant critic Tim Zagat told New York 1, “It's not good and it’s probably the most threatening thing that has happened,” he said, referring to the current crisis. “But we’ve seen the industry, which is extremely strong, come through times that were equally difficult."

Zagat predicts that restaurants will continue to open, but notes that they will be “fewer and more value-oriented.”

Background: Restaurant industry in slow decline

The restaurant and bar industry has been suffering for much of 2008. Reuters reported that a survey published by Nielsen and Bevinco this summer said, “more than 40 percent of bar managers, bar owners, and bartenders surveyed … report they have seen a decrease in consumer traffic, while 25 percent note a decrease in the number of drinks ordered and 22 percent say that customers are ordering less expensive drinks.”

Related Topic: At-home dining boosts cookbook and cooking utensil sales


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