We Are Not Alone

too many restaurants

Why, when the economy seems so strong, are we hearing rumblings that the foodservice segment is “soft”? Most specialists who monitor the industry will tell you there are too many restaurants. That probably accounts for most of it; however, other issues accumulatively are affecting consumers’ discretionary dollars that normally would find their way to a meal away from home. Some of those are as
follows.

Fred G. Sampson
Fred G. Sampson

Of the millions of Americans deeply concerned about negative results that a major change in healthcare premiums, deductibles, and child coverage will have on their budget, no group is more concerned than seniors, a normally reliable segment of diners. The cost of healthcare for the most part dominates their lives.

This is also a group that has depended on certificates of deposit for its recreational spending. I offer this from The Week magazine: “Waiting for higher rates on your savings account? Hope you’re patient,” said Christina Rexrode in The Wall Street Journal. “For now most bankers are happy to keep deposit yields low, standing pat even as the Federal Reserve hikes short-term rates.”

Then another group has adjustable mortgages, hoping these same banks and other lending institutions don’t raise rates, and here again have their budgets squeezed.

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We are not alone in this “What’s going on?” situation. Macy’s is closing 75 stores; the all-time icon of the retail world, Sears, is slowly disappearing before our eyes; and J. C. Penney is downsizing.

One of the more interesting articles is by Daniel Gross of Slate.com, “Why Can’t Americans Get a Raise?” Space and time limit the sharing of all its highlights. U.S. companies have literally forgotten how to compete for employees, according to Mr. Gross. The demand for workers is so high right now that airlines have cancelled flights, home builders have slowed construction, and farmers fret that crops will go unharvested, all for the lack of qualified hands. There are currently 5.7 million job openings in the U.S., more than twice the level of eight years ago. In America, employers won’t increase wages to attract candidates, and employees “either won’t or can’t demand more.”

The reason for this puzzling state of affairs “may be psychological.” The pain of the financial crisis is still fresh in our minds, just as the Great Depression left scars that “influenced consumer and investor behavior for decades.”

Mr. Gross has stated that it may be a long time before we see any real increase in wages. That undoubtedly would be a factor in discretionary spending. That’s us. As further evidence of this problem, The Associated Press reported that the Labor Department showed wages growing more slowly than the last quarter. Total compensation was up 0.5 percent for April to June, compared to 0.8 percent in the first quarter.

Solid hiring usually drives up wages and prices, but recently “the Fed kept its key interest rate unchanged and said inflation has stayed undesirably low even though the job market keeps strengthening. Too-low inflation can slow economic growth by causing people to delay purchases if they think they can buy a product for a lower price later.”

There are those in the industry who are bewildered by the slipping sales. They also continue to think there are just too many restaurants and there are still many more to come.

Jonathan Maze, senior financial editor for Nation’s Restaurant News, points to the MillerPulse index showing monthly declines for 10 of the past 11 months. Same-store sales declined by 0.9 percent during the month and 0.5 percent on a two-year basis. MillerPulse cofounder Larry Miller has been among those who believe that the widening gap in restaurant prices and grocery store prices is to blame. Restaurants increased prices by 2.3 percent in April, according to federal data, while grocers lowered their prices by 0.8 percent.

As I said at the outset of this piece, these are unsettled times. Many issues demand our attention: the economy, the potential threat of hostilities, possible tax relief, and whether or not Washington will finally start to move the nation’s agenda.

We still have the greatest economic system in the world and the best chance of improving it. Just hang in there. We are not alone.

Fred G. Sampson is the retired President Emeritus of the New York State Restaurant Association. He began working with NYSRA in 1961. Within the next four years the NYSRA more than tripled its membership and expanded from one regional chapter to eight. Sampson played roles in representing restaurants on issues including paid sick leave, minimum wage, liquor laws, a state-wide alcohol training program and insurance plans. Comments may be sent to fredgsampson@juno.com