Is a Restaurant Recession Coming? – QSR magazine

Restaurant News

The most recent American economic cycles have been defined by extremes: One with the Great Recession (the worst downturn since the Great Depression) and the other by way of the ongoing economic expansion, the longest ever in American history.

But restaurateurs know that this boom market can’t last forever. And already some indicators seem to portend a potential cool-down.

With a potential recession on the horizon, though, experts say operators shouldn’t let memories of the prolonged recession a decade ago shade today’s decision-making. After all, for all of its challenges, a recession may present new opportunities for savvy operators.

“Somebody always wins in a downturn,” says Matthew Mabel, president of consultancy Surrender Inc. “The strong definitely can get stronger. The weak may hurt or go away. It’s Darwinian.”

Mabel says the next recession may help alleviate two of the most chronic challenges in the industry: rising rents and an ultra-tight labor pool. Slower job growth and layoffs could help free up badly needed workers and relax wage pressure on employers. Likewise, a recession could also help drive down skyrocketing real estate costs, particularly as the retail apocalypse continues to hollow out more big-box storefronts.

“The strategic operator will take advantage of that for the long term,” he says. “It may be a cyclical thing, but I think there’s going to be an adjustment in real estate because rents and construction rates cannot continue to go up and up.”

Mabel says his best advice for preparing for a potential recession is the same as his guidance for operating a restaurant in boom times: He suggests operators always run their restaurants like they’re about to sell them and budget as though they’re going to get no help from the economy.

When the next recession hits, Mabel doesn’t think customers will drastically cut down their restaurant frequency. Rather, many will save cash by trading down, whether it’s from casual dining to fast-casual restaurants, or from fast casual to quick-service brands.

“People don’t stop eating three meals a day,” he says. “They don’t stop increasingly relying on restaurants for those meals, but they trade down.”

For Wing Zone cofounder and CEO Matt Friedman, the discussion about a recession isn’t theoretical. “It’s coming,” he says. “The question is, is it coming in 2020 or 2021? There’s going to be a slowdown.”

Aside from possibly helping with real estate and hourly labor, he thinks a recession may offer some opportunities at the top of the talent pool. He says many potential franchisees work in stable jobs in corporate America that offer stock options, generous 401(k) matches, and high salaries. But a recession may shake them loose, pushing them to consider investing in the restaurant space.

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