What’s In Store for 2009?
November 2008
by Debby Cannon, Ph.D., CHE, Director – School of Hospitality, Robinson College of Business, Georgia State University
As this article is being written, economic times are tenuous at best. I try to gauge from the students in my hospitality strategic management class how their respective employers are faring; a senior working at a suburban Starbucks states that their drive-through lines have never been longer and their business is booming. Another student quips that you need a lot of caffeine to ready yourself for the search for gasoline. That brings many chuckles – even in an early morning class. What’s in store for the foodservice industry in 2009? One thing is for sure. We are a resilient people, and we are definitely a resilient industry.
The restaurant industry remained a powerhouse in the nation’s economy in 2008 and that will continue in 2009 and beyond. Restaurant industry sales were projected to reach $558 billion in 2008 – an increase of 4.4 percent over 2007 – with the overall economic impact of the industry at $1.5 trillion. As the National Restaurant Association’s Senior Vice President of Research and Information Services, Hudson Riehle, stated: “While sales growth in the restaurant industry is slower than in recent years, it is by no means anemic.” Each dollar spent dining out generates approximately $2.34 in business to other industries (National Restaurant Association).
There is no doubt that 2008 was a challenging year for most foodservice operators. The economic slowdown was the top challenge voiced by restaurant operators in a mid-year survey. This was the first time in 29 months that recruiting and retaining employees was not cited as the largest challenge by the same group. In an industry that operates on margins of four to six percent, every penny counts. Food and beverage costs are significant, typically accounting for approximately 33 cents of every dollar of sales. With wholesale price inflation the highest in 27 years, food costs spiked. Individual commodities critical to most restaurant operations experienced dramatic gains in price in 2008: flour (87%); eggs (73%); fats and oils (49%); milk (20%), just to mention a few. The escalating food costs were tied to several factors – oil and energy prices, growing global demand from rapidly developing economies such as China and India, the weak U.S. dollar and a larger share of the grain market being diverted to ethanol production. On top of that, the minimum wage rate went up, nationally, in July 2008. Although the economy may be flat for the first part of 2009 with clearer signs of recovery later in the year, we will be dealing with higher oil and energy prices for some time, at least until alternative energy sources become readily available. Food costs, therefore, may stabilize but will not likely drop to pre-2008 levels.
The most successful foodservice businesses will continue to follow practices in 2009 that have worked well in the past:
- Ramped-up marketing
- Regular promotions of certain items and combos
- Optimized cost-value relationships – substitution of ingredients and portion-size changes may occur but these cannot jeopardize the crucial perceptions of value and quality by the customer
- Emphasis on productivity through utilizing technology and multi-purpose equipment and staff cross-training
- Staying in touch with the customer and more important than ever operators have to keep their focus on long-term retention of customers through quality service and products
- Going green by adopting sustainable practices that show a “Return on Investment” such as with lower utility bills
Ira Blumenthal, Georgia State’s School of Hospitality Executive-in-Residence, and President of the Captain Planet Foundation, concurs that 2009 will be a more environmentally friendly year with an increasing number of restaurant and foodservice operators making changes – from low-flow toilets to recycling – to save money for the long-term. Blumenthal also predicts time and convenience will determine several 2009 foodservice trends. Blumenthal, states even with all of our modern conveniences, we will have less time in the future. Our “activity rich and time poor” culture results in a competitive opportunity for foodservice operations. The time factor relates to Blumenthal’s second prediction, “off-premise is on-target.” He explains that due to double-income families (i.e., no one is home to cook) the growth of grab n’ go, take n’ bake, heat n’ eat and other home solutions will continue to grow. The consumer wants restaurant-quality food and even restaurant brands for home consumption. Hence, the future holds more growth potential for take-out, delivery and off-premise catering business.
The third 2009 trend predicted by Blumenthal is tied to the increasing consumer awareness of “eating healthy.” We are a more sophisticated group of consumers, and the result is we’re eating for the health of it.
By 2010, it is estimated that the U.S. will have 10 million more jobs than workers – a figure that is inclusive of all industries. With the increasing retirement of baby boomers, the remaining workforce will not be large enough to cover business growth. This demographic trend, paired with high turnover already present in some foodservice operations, could result in “labor pains” particularly at a time when the economy is expected to be rebounding and businesses expanding.
