The Economics of Eating Out

In the wake of the 9/11 attacks and the 2001 recession, Georgia's 21,000 restaurants encountered many of the same forces that hurt hotels: fewer people working, less travel, reduced corporate expense accounts and consumers' tightfisted attitudes.

Nonetheless, the pullback in overall spending for restaurant fare was shallower and shorter lived than in previous recessions. The industry's performance was much less cyclical than in the past. Indeed, on an annual basis, restaurants' overall sales did not decline, and have increased every year since 1991. Apparently, busy people now view eating out as a basic necessity rather than as a discretionary purchase and favor modestly priced fare. Travelers and visitors only accounted for 30 percent of restaurant sales.



In 2007, expenditures for restaurant fare will increase moderately. Positive developments include population and employment growth, increasing business activity, a rise in disposable personal income, more travel and tourism, more convenient locations, greater emphasis on meeting the needs of racial and ethnic minorities, more choices, healthier menus and busier schedules.

The differential cost between buying items at grocery stores for at-home consumption and buying restaurant fare probably will diminish. Over the long run, the increased proportion of singles, more married women in the labor force and the geographic dispersion of families will also encourage eating out.

High gasoline prices may compete with restaurant sales for households' disposable personal income in 2007. Another negative trend is that fewer guests are ordering alcoholic drinks - which can be an important profit center. Pervasive bans on indoor smoking also may prevent patrons from lingering and further reduce alcohol sales. Smoking bans don't appear to depress overall sales, but they will shift business from one restaurant format to another.



High prices for many basic agricultural products were a problem in 2004-06; these prices are likely to remain high in 2007. Supply-side problems will continue in 2007, because, for several years, the number of restaurants has grown faster than demand.



Moderately priced full service restaurants and inexpensive quick casual establishments are expected to do better than their fast food and expensive full service counterparts in 2007. Full service restaurants depend heavily on businesspeople with generous expense accounts, many more of whom will be traveling in 2007. Unfortunately, they will be monitoring their expenses.



Fast food restaurants are expected to lose market share to their quick causal cousins, which are more upscale and emphasize freshly prepared foods rather than burgers and fries. Hotel restaurants will see above-average gains, bars and caterers will see below average gains; commercial cafeterias' business will decline.

The intense struggle for customers will limit profits, but restaurants will de-emphasize direct price competition and promote menu options and service. This trend should help the industry maintain profit margins. Quick-service restaurants will face more competition from grocery stores, however, which now offer a wider selection of freshly prepared foods and often have onsite cafes.



Finding qualified and motivated employees and containing labor costs will be more difficult in 2007. Improving labor market conditions will intensify the competition for workers, especially in Metro Atlanta.



This is a long-term problem for the food service industry. To cope, some restaurants are hiring older workers, installing more labor saving equipment, emphasizing takeout and keeping a lid on costs. Others are opting for self-service operations, such as beverage kiosks.



Legislative efforts to increase the federal minimum wage represent a significant risk to restaurants, which are labor intensive and employ a large proportion of entry-level workers.

Also, to the extent that they are successful, recent legislative efforts to curtail the inflow and/or restrict the hiring of illegal aliens will make it even more difficult for restaurants to meet current and future manpower needs.





Dr. Jeffrey M. Humphreys is director of the Selig Center for Economic Growth at the University of Georgia's Terry College of Business. E-mail him at jhumphreys@terry.uga.edu.

Moderately priced full service restaurants and inexpensive quick casual establishments are expected to do better than their fast food and expensive full service counterparts in 2007. Full service restaurants depend heavily on businesspeople with generous expense accounts, many more of whom will be traveling in 2007. Unfortunately, they will be monitoring their expenses.



Fast food restaurants are expected to lose market share to their quick causal cousins, which are more upscale and emphasize freshly prepared foods rather than burgers and fries. Hotel restaurants will see above-average gains, bars and caterers will see below average gains; commercial cafeterias' business will decline.

The intense struggle for customers will limit profits, but restaurants will de-emphasize direct price competition and promote menu options and service. This trend should help the industry maintain profit margins. Quick-service restaurants will face more competition from grocery stores, however, which now offer a wider selection of freshly prepared foods and often have onsite cafes.



Finding qualified and motivated employees and containing labor costs will be more difficult in 2007. Improving labor market conditions will intensify the competition for workers, especially in Metro Atlanta.



This is a long-term problem for the food service industry. To cope, some restaurants are hiring older workers, installing more labor saving equipment, emphasizing takeout and keeping a lid on costs. Others are opting for self-service operations, such as beverage kiosks.



Legislative efforts to increase the federal minimum wage represent a significant risk to restaurants, which are labor intensive and employ a large proportion of entry-level workers.

Also, to the extent that they are successful, recent legislative efforts to curtail the inflow and/or restrict the hiring of illegal aliens will make it even more difficult for restaurants to meet current and future manpower needs.





Dr. Jeffrey M. Humphreys is director of the Selig Center for Economic Growth at the University of Georgia's Terry College of Business. E-mail him at jhumphreys@terry.uga.edu.

Edit Module Edit Module
Edit Module
Edit Module
Edit Module
Edit Module
Edit Module