Crying Time Again

This from Business Insider.

The restaurant industry is not a sideshow. About 14 million people work in it, according to the National Restaurant Association. With $710 billion in annual sales, it’s an important part of consumer spending and accounts for about 4% of GDP. If the industry is having problems, it’s a red flag for the overall economy.

The news in the restaurant business presumably brings up the words to a song the late Buck Owen's wrote and the late great Ray Charles immortalized: "It's crying time again. You say you're gonna leave me." If this article from Insider is any indication, it looks as if it's crying time again for more than the restaurant business. Try the big E word: Economy.

Eight restaurant companies representing 12 chains have filed for bankruptcy since December: Restaurants Acquisitions, Cosi, Logan’s Roadhouse, Fox & Hound, Champps, Bailey’s, Old Country Buffet, HomeTown Buffet, Ryan’s, Johnny Carino’s, Quaker Steak & Lube, and Zio’s Italian Kitchen. 

Restaurants are precarious creatures. They lease costly space and have to invest in equipment and furnishings. It’s a competitive environment, with high expenses and little pricing power. To expand, they load up on debts. Some, like Cosi, always lose money. Customers are finicky and fickle. When new competitors come along, or when the economy tightens, customers thin out and creditors begin to fret and turn off the money spigot. 

Some of that is normal. The restaurants come along, and old ones die.
“But the current wave of bankruptcies is definitely unusual, and rivals the chain bankruptcy wave of 2009 and 2010, when several chains filed for debt protection after sales fell,” writes Jonathan Maze at Nation’s Restaurant News.

Here are some other points.

Only 30% of the restaurant operators reported a year-over-year increase in same-store sales. That’s down from 71% in February.

Operators also reported a net decline in customer traffic: while 21% reported a year-over-year increase, 59% reported a year-over-year decline. August was the fourth months in a row of year-over-year net declines in customer traffic. 

And operators are turning gloomy about the overall economy: only 17% expect the economy to improve over the next six months, but 29% expect conditions to worsen: This represented the 10th consecutive month in which restaurant operators had a net negative outlook for the economy.

Read more: businessinsider.com/the-restaurant-industry-is-giving-off-warning-signs-2016-10?