Thursday, November 17, 2016
The Truth May Be Hard to Swallow
It may come as a surprise to many Americans, but the restaurant business is decreasingly viable across the land. Not that the restaurant business has ever been easy. Part of the new issue stems from the continuous erosion of discretionary buying power for 70% of Americans. Decades worth. The price of verything except gasoline and natural gas is rising. From medical insurance, food, Internet access, rent and home prices, cars, clothing, etc. We really have not recovered from the last mega-recession, and while wages have risen, they have hardly been going up enough to open consumer wallets.
But with the rising minimum wage and steadily rising food costs, and with stern consumer resistance to paying more for eating out, restauranteurs are increasingly forced to choose between raising prices (and for all but the most chi chi, the resulting loss of customers) and cutting profit margins. When the profits disappear, the results are obvious: the restaurant goes out of business.
AOL featured a piece on October 27th figuring out that the greater New York City area may just have crossed the threshold of viability for most eateries. Not only is getting food into NYC from where it is grown an average of over $6 thousand a year more than its costs on the West Coast, but higher rents and labor costs render NYC the most expensive place to open a restaurant venue in the United States… with consumers pushing back hard on attempts to raise prices.
Here are a few of the observations from that AOL piece, and while much of this describes New York, big cities – from Los Angeles, San Francisco to Chicago and Boston – are probably not too far behind. Chefs still come out. They still try, but it has never been this difficult to make a restaurant work.
“Restaurants lose customers as they get more expensive, because Americans won’t really budge when it comes to how much they’ll spend to eat out: According to MIT economics professor William Wheaton, Americans are dead set on spending $1,200 to $1,400 a year on restaurants. They’ll also visit restaurants of all sorts, according to an NPD food industry analyst, 190 times a year. So when that independent operator starts charging more for their artisanal tacos, people respond by opting for the cheaper spot, like Shake Shack or Chick-fil-A…
“As of this spring, the tristate area — New York, New Jersey, and Connecticut — has more restaurants than anywhere else in the States, with 16.9 restaurants per 10,000 people. L.A. lags behind at 12.1 per 10,000 people, and L.A. is the No. 2 market. An independent operator fending off all this competition just can’t weather the storm like a chain…
“The customer base for restaurants started shrinking in 2007, as the recession led consumers to quick-service spots. As of June 2016, these businesses accounted for 80 percent of restaurant visits. Independent restaurants in New York, which often don’t have much room for error, are particularly vulnerable to this loss of
“It’s so bad, even an executive from one of New York’s most successful restaurant groups tells chefs to leave: If there’s a home-bred restaurateur that New Yorkers believe can succeed in this climate, it’s Danny Meyer. But even his chief development officer at Union Square Hospitality, Richard Coraine, thinks New York is over, telling the Times, ‘People are leaving to find their dreams elsewhere.’ And where does he advise chefs to go if they want to make a restaurant work? Los Angeles, which is truly depressing to New Yorkers who lately have become all-too-accustomed to watching friends move west.”
I have always wondered where all those clerks, assistants, food service workers, laborers, etc. live when they work in high housing cities, particularly those where that high cost stretches for miles in every direction. In the tristate area, they live with family, stacked like pancakes with roommates or commute for hours every day from great distances. Soon, they won’t have to worry about being food service workers.
And it’s not just the standalone restaurants. Chains have been suffering too, with sales off by more than half over the past decade. “These restaurants, which include former American staples such as Big Boy, Ponderosa and Bennigan's have not been able to maintain a steady crowd. They have failed to update their brand or menu options. As a result locations have been closed in favor of a new generation of eateries.” USAToday, 12/12/12, but even that new generation of eateries is swaying and swaggering from the cost of operations and the unwillingness of consumers to pay more.
Some of the most esteemed old line restaurants are fading away. Institutions, really. Nothing screams this louder than the Times Square famous Carnegie Deli… which is gone, gone, gone. As the picture, above right, suggests, there are a lot of unhappy folks who just cannot believe that it’s gone. There are almost no delis left in NYC anymore. It is gonna get worse.
I’m Peter Dekom, and reality is often a bitter pill if not managed well… but some things are inevitable… no matter what.