How the Restaurant Industry Always Bounces Back From a Recession
Often referred to as the ‘ Great Recession’, the last notable global financial meltdown took place between 2007 and 2009 (give or take, and depending on which financial analysts you follow).
Although that term is mainly used in the US, the impact of the subprime market collapsing was felt throughout the world, resulting in the ‘credit crunch’ experienced by Brits.
One of the hardest-hit sectors back then was the hospitality sector and, specifically, the restaurant industry.
Despite this, many believe foodservice boomed in the wake of the Great Recession. In 2018, Restaurant Business Online published a series of statistics that revealed how well the sector had faired from 2010 onwards. Here’s the pick of the bunch:
- the total number of restaurants increase by 16% in the ten years following the recession;
- monthly restaurant sales increased steadily alongside the rising number of locations;
- the number of people working in the industry increased but 2 million; and
- the average restaurant hourly wage increased to just over $14.
That begs the question…
How can a recession be good for restaurants?
Let’s not beat around the bush: a recession isn’t something any business wants. But it’s something we have little control of individually, and when one strikes, it often brings the best out of certain industries.
Here are three reasons a recession can be good thing for restaurants in the long run:
With people sadly losing their jobs as the result of a recession, the restaurant industry often benefits from an increased number of job seekers. And, while some see the restaurant industry as a short-term solution, many of the best employees end up staying.
2. New locations
During a recession, there’s an increased chance of new locations emerging that would once have been unattainable for independent operators. Lower rent and landlords looking to maximise their property portfolios offers plenty of exciting opportunities for new operators or those looking to expand.
Perhaps most excitingly, a recession forces the restaurant sector to think beyond the realms of what it currently does. That usually results in more inventive types of service, new dishes and greater investment in technology to improve the guest experience.
How COVID-19 immediately hit the restaurant industry
The speed with which the coronavirus outbreak hit the restaurant industry this year was astounding.
Like other sectors, the impact was quick, deep and severe. As global airline demand slipped, so too did the desire (or ability) to dine out.
In the US, for instance, restaurant bookings literally dropped off the chart, as can be seen from this OpenTable graph:
However, it may be that COVID-19 simply accelerated a recession that was already on the cards.
For instance, in the UK, out-of-home (OOH) foodservice market visits dropped by 510 million annually between 2007 and 2010. Fast-forward to June 2018, and it was revealed that the same market had dropped 1% in the first quarter of that year.
That might not sound like a lot, but the 1% decrease represented 28 million visits by diners to restaurants.
In 2019, the national press began to suggest that the UK in general was slipping towards a recession following slowing growth in the service sector. The same reports highlighted that this sector accounted for around 80% of the economy, and thanks to the uncertainty of Brexit and other outside factors, looked almost certain to crash at some stage.
Regardless, we’re almost certainly headed for a global recession. So, what can we learn from the last big financial melt-down?
The impact of the Great Recession on the restaurant industry
When the Great Recession sank its teeth into the hospitality industry, the Dow Jones U.S. Restaurants & Bar index dropped considerably. Made up of big boys such as Starbucks, Red Lobster and McDonalds, the fall of the index was the first indication that things were going to get tough for quite a while.
This was illustrated by the fact that employment in the food service sector only returned to levels greater than pre-recession in 2011. But if you look deeper at the restaurant employment troughs and recovery details in the US alone, there remains a consistent growth in jobs.
So, what else changes after a recession for restaurants?
5 ways restaurants have changed since the Great Recession
The Great Recession and credit crunch were tough. But it resulted in some key restaurant industry changes that have resulted in a more resilient, independent, varied sector.
1. There are more restaurants - big time
There are now 16% more restaurants in the US, dismissing any fears people may have had about there being too many to begin with.
2. Independents have grown in number
In the UK, restaurants are fast taking place of shops on the high street. In the US, experts believe that independent operators have outperformed chains since the economic downturn in 2008.
3. Fast-casual is now a thing
There are lots of new dining experiences, but fast-casual’s rise to fame is arguably as a result of the previous recession. In 2008, it accounted for just 7% of restaurant sales. It has now grown to more than 13%.
4. Technology is a big deal
Whether it’s innovative use of WiFi marketing or engaging smartphone experiences for diners, technology has flourished in restaurants over the last ten years.
5. Franchising has become more popular
Before the 2008 recession, McDonald’s operated 2,000 of its locations in the US. By 2017, that number dipped below 900, demonstrating that the franchise market has grown considerably.
Source: Restaurant Business Online
Simple tips for surviving a restaurant recession
Recession or no recession, the following quick-fire tips will help any restaurateur survive the inevitably tough times they’ll occasionally face.
- Don’t cut marketing. When demand drops, you need to be more vocal than ever. Reducing your marketing budget during a recession is a false economy. Go quiet, and you won’t get noticed.
- Revamp the menu. If you have more time on your hands, invest it in revamping your menu. Create something new and in-line with modern diner expectations and pay particular attention to allergens.
- Keep an eye on overheads. What services, systems and products are you paying too much for? Cut back where it makes sense to.
- Do the little things. Turn lights off when not in use, install energy efficient appliances and get on top of needless food waste.
- Keep an eye on payroll (but don’t act too hastily). There are ways you can trim your payroll without making people redundant. For instance, if you can reduce server numbers on quieter nights or combine roles, you can reduce this particular overhead without causing too much staff anguish.
We’re looking at historic data above, and there’s no guarantee the restaurant industry will react in the same way if we experience another recession.
One thing is for certain, though. As history has proven, the restaurant sector and hospitality industry in general remains one of the most resilient. Whatever comes next, we’re confident it will roll up its sleeves, dig deep and find a better future.