Archive for April, 2014

CHALLENGES FOR RESTAURANT OPERATORS

Friday, April 4th, 2014

Economic recovery is uneven giving restaurant operators a challenge.
“Wealth is coming back, but it’s an uneven distribution of wealth,” said Kimberly Savilonis, Senior Vice President, Strategic Marketing for GEFF. “Everybody’s talking about the economy doing better, but you’ll hear positives and negatives.” With concerns of higher labor and day to day commodity costs this year, it might dampen restaurant operator spirits according to the annual GE Capital Franchise Finance (GEFF) review of the Chain Restaurant Industry.
There are opportunities and a ray of hope in new technologies that improve the customer experience. Reworking menus with more healthful dishes, many are finding success with this, fresher food and higher quality along with new technologies the GEFF report said.
A broad look at the economy and factors is taken in the annual review along with the factors that have contributed to softer traffic trends over the past year. While unemployment dropped to 6.7 percent; which brings it below 7 percent for the first time since 2008. Real disposable personal income, or DPI, grew only 0.7 percent in 2013. Gains were seen primarily in the equities and the real estate market, which means many consumers are not sharing in the benefits. Equities, for example, have recovered 171 percent of recession losses, but only 54 percent of individuals own stock, and those who do tend to be in higher-income households. About 65 percent of Americans own homes, but home values have only recovered about 55 percent of their total losses, the report said.
Higher-income families are driving any increase in spending. Based on income, households within the top 20 percent were responsible for about 90 percent of the increase in inflation adjusted consumption between the years of 2009 to 2012. The top 5 percent of households have increased their spending 17 percent since 2009. The bottom 95 percent of households have increased spending by just 1 percent. “Look at where they spent their money,” said Savilonis.”Auto loans are at an eight-year high in 2013 and Student loans quadrupled in the last 10 years.”
“While delinquency rates for credit cards has declined but those seriously delinquent on student loans has increased”, Kimberly continued; “The student population has increased as a whole and they are not making as much money or spending as much.
Restaurant chains rely heavily on middle income households; this had an effect on restaurant traffic declining last year the report said; however, total sales grew 3.1 percent. “When you look at operators, even though they are feeling more confident about the future, their confidence about the current situation has dropped because of the softer traffic trends,” said Savilonis.
There are a growing number of lends willing to provide cash for restaurant chains to grown, even while merger and acquisition activity in the industry has declined. Savilonis said, “The capital is available. It is whether the sellers and buyers can reach an agreement about the value of the company.”
To better connect with their customers this year, restaurants are turning to technology, including; touch screen tablets, mobile ordering and payment, along with social media.
“Although success has varied among brands, these trends be likely to continue over the next few years as over two-thirds of restaurant operators are deploying more social media resources in 2014,” the report said.
Beef prices, along with other commodity costs are a concern this year as labor costs are rising with the minimum wage increasing in various states. Savilonis warned that restaurant chains will need to work harder to keep their employees as unemployment declines and jobs become more available. In 2008, tkurnover within the industry was about 126 percent, she said. Prior to the recession it was about 147 percent, but now it is about 102 percent.
“As unemployment goes down, turnover goes up,” she said. “Employers need to look at the benefits they provide and what they can offer employees to keep them.”