Restaurant recession: Oversupply of eateries or economic omen?

Across America, from established restaurant chains to upstarts, bankruptcies are rising, locations are closings and profit margins are shrinking.

As noted recently in The Wall Street Journal, “In just one recent week alone, three restaurant companies filed for Chapter 11 bankruptcy protection… at least five other restaurant operators have filed for court protection this year” and “some chains have been closing locations and shaking up management.”

Is an oversupply of restaurants responsible for the downtrend, or are soft sales a harbinger of economic danger ahead?
Not according to Starbucks CEO Howard Schultz, who blamed declines in customer traffic and the industry slowdown on more than “just an economic downturn.” Schultz claimed the “profound weakening in consumer confidence,” the “very uncertain election,” “domestic civil unrest with regard to race”… “and I think the issues around terror have created a level of anxiety.”

Also blaming the race for the White House as a reason people were buying fewer burgers and fries, Wendy’s CEO Todd Penegor recently said, “…when a consumer is a little uncertain around their future and really trying to figure out what this election cycle really means to them, they’re not as apt to spend as freely as they might have even just a couple of quarters ago.”

During the company’s third-quarter earnings call, Yum! Brands CEO Greg Creed said, “It goes without saying that people are trying to decide who to choose and what the impact will be on the economy, and I think people are maybe just hunkering down a little bit.”
Popeyes CFO William Matt attributed the restaurant downturn to “a little more uncertainty with the consumer” and “we think there is a rather unusual election going on and we think that unusual election is causing some uncertainty.”

Echoing the refrain, Stephen Easterbrook, McDonald’s CEO, said, “Whether through elections or through global events, people are slightly mindful of an unsettled world. When families are uncertain, caution starts to prevail, and they start to hold back.”

Restaurant CEOs also attribute meal-kit delivery services, low food prices at grocery stores that have more people cooking at home and accelerated buying of prepared meals available at supermarkets and convenience stores for eating into profits.

TREND FORECAST: “It’s the economy, stupid,” not the presidential elections or consumer uncertainty, that’s keeping people from eating out. According to research company NPD Group, 18 to 35 year olds, once the largest group of restaurant customers, are cutting back. Indeed, a generation saddled with $1.3 trillion in college debt, working low-paying jobs or no jobs at all, and living with their parents in record numbers because they can’t afford to live on their own… along with 51 percent of working Americans earning less than $30,000 per year, 35 percent having debt at least 180 days past due, and 70 percent having less than $1,000 in savings… eating out is not an option, it’s a luxury! More than a restaurant recession, it is a precursor of a national recession.

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