Optimism on the Menu for Restaurants

Optimism on the Menu for Restaurants

Here is the good news for U.S. restaurants: it costs less to fill those SUVs and minivans these days, so some of the saved money is going to be spent eating out. (Blooming Onions for everyone!). The bad news? That windfall to restaurants is not what it would have been in the good old days before the Great Recession, when any excuse was a good enough excuse to skip cooking. Add a side of cost increases and you have a solid-but-not-spectacular outlook for the restaurant industry for 2015.

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Those conclusions come from a new industry forecast by the U.S. National Restaurant Federation (NRA, no not that NRA), and it is worth perusing. Generating as it does over $709 billion in in sales and employing around 14 million people, the restaurant industry is a big part of the U.S. economy, and one that has grown over time. In 1955, 25 percent of the Americans’ food dollars were spent in restaurants, a figure that has now grown 47 percent. Given those numbers, it is clear that the fortunes of the industry are both a symptom and a cause of the fortunes of the broader U.S. economy.

With what looks like a steady improvement in the U.S. economy ahead, the industry association does expect to see more visits to restaurants and more money spent in them in 2015. Still, at ‘real’ (inflation-adjusted) growth of 1.8 percent, it is fairly modest growth in a historical context (the industry worries that this might be a ‘new normal’). Higher employment and some modest gains in incomes will likely be a factor in more eating-out, but so will the recent dive in gas prices. The report offers no direct calculations on how exactly fall in the price of filling up the tank translates into restaurant spending, but they do confirm that most people would like a break from cooking at least some of the time. Eight of ten of those surveyed by the NRA say that dining out with family and friends is a better use of their leisure time than cooking and cleaning up (and seriously, who exactly were the 20 percent of respondents who disagreed with that statement?).

The labor trends in the restaurant industry are also telling. If you do decide to eat out these days, you are less likely to be served by a teenager than was true in the past. In 2007, just under 21 percent of the restaurant workforce was aged from 16 to 19, a figure that has since slipped to 16.5 percent. Those aged 20 to 24 are taking more of those jobs: they account for 24.4 percent of total restaurant employment now, as compared to 21.4 percent in 2007. To some extent that no doubt reflects the labor market prospects of young adults, many of whom find restaurant work one of their few job options, whether or not they have college degrees. As they take jobs they may not want, they squeeze out their younger siblings who may have accepted restaurant work if it was available.

What also strikes me from the data is a fairly significant increase in the share of jobs held by those aged from 55 to 64. At 6.5 percent of the total it is still relatively small, but it is still up from 5.2 percent in 2007. It could be that those boomers are all in wonderful, management jobs that they are thrilled to have, but in truth the reality is likely to be a little different. For those at the mature end of the labor force, job loss may mean a scramble to find a new position in an industry they may not have considered previously. If restaurants are hiring, well at least someone is.

The report does not say it outright but the fact is that for the past several years the weak U.S. labor market has cushioned restaurants from the weak U.S. economy. Put less nicely, cheap labor has helped offset slow sales and high food prices. With a falling U.S. unemployment rate, that it changing a little, and as the NRA phrases it, ‘The challenge of recruiting and retaining employees is making its way back onto the top-challenges list for restaurant operators, who have benefited from a deeper labor pool for the past several years’. So yes, it is going to cost more to hire people, which may cut into what are still narrow margins.

Restaurants have a bunch of other challenges ahead – the biggest of which is high food prices. Mindful of the fragile economy, many of them have resisted passing those on (they have been paying more for everything from dairy products to pork). With things getting better, many may try to raise prices with what are likely to be varying degrees of success. In the lower price tiers, many consumers may prove to be very price elastic when it comes to eating out (that means if you raise prices, they will stop buying).

When economists look for economic bellwethers, they rarely mention the restaurant industry as one that they want to watch, instead giving the honor to manufacturing or construction or maybe courier services (think FedEx). This might be the year though that services, and particularly food services get a little more respect. Indeed, some closer scrutiny on restaurant spending may let us know whether this economic upturn really has legs.

 

 

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