A Recession and Food Service Demand

There’s been lots of talk whether recession might benefit certain niche markets. David makes a compelling point about service versus price point. It’s not always about the “best price” or “lowest price”- sometimes it’s about the overall value. David’s article is definitely food for thought. The following article is posted courtesy of author, David Maloni, with the American Restaurant Association Inc. http://www.AmericanRestaurantAssociation.com

“Earlier this month the National Bureau of Economic research confirmed what many in the restaurant industry already knew…we are officially in an economic recession that began in December 2007. For a change this week I thought it would be interesting to look at the demand side of commodities from the food service sector. Thus the chart below which is annual restaurant sales growth (full service and limited service) and annual consumer disposable income growth. This chart confirms that restaurant sales trend with consumers disposable income. As a matter of fact, since 1993 total food service and drinking place sales correlate to consumer disposable income at 99%. No big surprise here. If consumers disposable income growth slows, so does their spend growth slow for the restaurant industry and vice versa. However, there has been speculation that the limited service restaurant sector could benefit from an economic slowdown. And while that may occur in 2009, history tells us that it’s unlikely. The correlation with limited service restaurant sales is also a solid 99% when compared to consumer disposable income. Now there may be some restaurant companies that benefit from an economic slowdown, but it’s my opinion that it may not occur in a particular segment because of price points. It may be more due to perceived value and operations. Now what does this have to do with commodity demand from food service? The general thinking is that restaurant chains that serve lower priced commodities will benefit from an economic downturn which in turn could bring a boost in demand for lower priced commodities. I would suggest to you that the commodities that may receive a demand benefit will be the ones that are perceived as a value and served by the better operators.

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