Expert Predicts Restaurant Recession Could Be Coming

 

A prominent analyst believes the restaurant industry may be heading into a recession—and the entire U.S. economy could follow suit, according to Bloomberg.com. The good news is, pizzerias may be positioned to not only survive, but thrive in the economic downturn.

Paul Westra, an analyst with Stifel Financial Corp., told Bloomberg last month that his firm has adopted “a bearish outlook for restaurants” due to flat second-quarter sales reported by many leading chains. He said declining restaurant sales could point to a nationwide recession since “restaurants have historically led the market lower during the three- to six-month periods prior to the start of the prior three U.S. recessions.”

In other words, as restaurants go, so goes the nation. And Westra thinks we could be heading for a “restaurant recession.” But don’t panic just yet. Another Bloomberg.com article sees a bright spot in all the gathering darkness. As columnist Shelly Banjo wrote, “McDonald’s could be one of the few to thrive in a slowdown by using its might to beat weaker competitors. But McDonald’s won’t be alone atop the food chain in a restaurant downturn: Pizza joints will be up there, too.”

Banjo reports that Domino’s saw its second-quarter 2016 sales rise by nearly 10% from the year before. According to Banjo, Bloomberg Intelligence analyst Michael Halen says pizza chains often thrive when consumers cut back on their spending. That’s because chains like Domino’s offer a strong value proposition, with the ability to feed a family on a three-topping large pie for $7.99.

Pizza chains like Domino’s have another big advantage: the convenience of online ordering. Digital sales account for 50% of the chain’s sales now, up from one-third in 2012. “Digital ordering lets Domino’s better target offers to customers and serve a greater variety of items,” Banjo writes. “It helps Domino’s get accurate orders and keep labor costs low.”

PMQ’s take on it: Independent operators can’t necessarily compete head-to-head with the major chains’ low prices, but they still offer much higher value than other segments of the restaurant industry. Even if you can’t always top a deal from Papa John’s, you can still bring in those quality-focused customers who disdain the chains. But you’ve got to take a page from the chains’ playbook and start taking advantage of the technologies that will help you get your best deals in front of those customers. That means online ordering, loyalty marketing, email marketing, e-newsletters and social media. Now’s also the time to develop profitable bundle deals with a high value perception for your customers and spread the word through every marketing channel available to you. If a recession is coming—and there’s no way to say for sure that it is—you don’t have to cede any ground to the big chains. You’ve got a strong value proposition, too. You just need to make sure customers know about it!