Wanted: recipe for growth

Employees prepare food in the open kitchen of Staple & Fancy, a restaurant owned by Ethan Stowell Restaurants, in Seattle, June 25, 2017. PHOTO: NYTIMES
Employees prepare food in the open kitchen of Staple & Fancy, a restaurant owned by Ethan Stowell Restaurants, in Seattle, June 25, 2017. PHOTO: NYTIMES

NEW YORK • The average American eats out about five times a week. Compared with any other time in history, this is stunning. And it leads to a question: Why are restaurants not doing better financially?

A recent article in QSR magazine said "restaurants have now posted four consecutive quarters of declining year-over-year sales" and the last time the industry saw a year with all negative quarters was 2009, when the economy was suffering the effects of the great recession.

Traffic has declined and billing growth is nearly stagnant, which adds up to bad news for the industry.

In recent decades, food and beverages have become the sort of thing that upper-middle-class folks aspire to make as well as eat.

For most of its history, food preparation was unglamorous. But as mass-produced food options became better and cheaper, cooking became optional - and then it became a craft rather than a tedious necessity.

When an industry becomes glamorous, more people will pour into that field than it can support, putting pressure on earnings.

As Mr Derek Thompson, a senior editor of The Atlantic magazine, pointed out, last year brought a net decline in the number of independent restaurants in big cities such as New York, San Francisco and Washington.

What growth there was came from fast-food chains. So while supply may be part of the story, to understand what is happening to restaurants, you also need to look at demand.

One place to look is at the local shopping centre.

Malls have been, for years, incredible drivers of restaurant sales - they have a captive audience, hungry from walking around.

Now they seem to be dying. Most of what they sell can be ordered online and much of the rest of the mall cannot survive without foot traffic driven by retail stores.

Meanwhile, the alternatives to eating out have also got better. No, you cannot get a meal from high-end restaurant Le Cirque in your supermarket's freezer, but you can get an increasing variety of frozen meals that are a decent substitute for a stop at TGI Friday's.

And there is also the increasing convenience of online takeout ordering and services such as Blue Apron that enable busy professionals to enjoy a high quality home- cooked meal without the time- consuming shopping and preparation.

So even as consumers become more interested in the quality and convenience a restaurant provides, restaurants face more competition to actually give these to them.

And in the major cities with the biggest concentration of folks with disposable incomes and food interest, restaurants face another problem: rising costs.

New York restaurateurs have been complaining for years about nosebleed rent hikes, a complaint that is echoed wherever gentrification threatens to alter the underlying economics of beloved eateries.

More places are also passing major increases in the minimum wage, a heavy burden for restaurants because, despite the glamour, the back of the house is still fundamentally a working-class place.

Rising costs and increased competition are a recipe for disaster in a business where even successful places generally enjoy only decent profit margins.

This is not to say the restaurant industry is doomed. There is still demand for things that are hard to make well at home, from fried chicken to snail porridge.

But it does suggest that the industry may be due for a shakeout. And that when people do dine out in the future, it may once again be a special occasion.


A version of this article appeared in the print edition of The Straits Times on June 28, 2017, with the headline 'Wanted: recipe for growth'. Print Edition | Subscribe