Which restaurants will recover first?

The hospitality industry, and the news, has made much of the fact that dining out in general, and casual dining in particular, has been hard hit by the changed economy. So we know that, for the most part, the “expense account” restaurants are down due to a decline in business entertainment spending, family restaurants are down due to a decline in average check and reduced frequency from their core customers, and QSR’s have, in many cases (McDonalds, Chipotle…) been the beneficiaries of diners from other categories “trading down”. So—what happens next?

My prediction, and I welcome your opinion, is that restaurants whose core customers are young singles and couples will recover first and fastest—and that they will recover sooner than retail, perhaps as early as the third quarter of this year. My reasoning is that young singles and couples have been the least impacted by the economic turmoil that has been roiling through the markets. First, because of their youth, they had little or no exposure to losses in the stock market. The same applies to their IRA’s and 401K’s—even if they had them, their value was relatively low to begin with, and probably did not figure into their “emotional net worth” calculations—an important driver for spending in the more mature segments of our populace. Additionally, many are renters, or, if homeowners, had made minimal down payments on starter homes. This means that they have lost little of real value in the real estate market, and, in fact, may be in a position to take advantage of current depressed prices to become first-time buyers! Finally, their spending patterns have heavily favored credit cards, not cash—and as long as they have held on to their jobs, they still have those credit cards, are still making the payments, and still have room to spend.

So, this is why I would pick restaurants like Yardhouse and BJ’s to recover more quickly than, for instance, Claimjumper—the first two have a following among young singles and couples out for good food and a beer or two, at a good price, in a fun environment. The latter, however, is far more dependent on families dining out—probably the hardest hit segment in the economy.

Finally, since retail will need to wait until the fourth quarter and get through the holidays to evaluate its health, I think the restaurant category discussed above will beat them to the punch. Americans are optimists, and as soon as we all begin to separate noise from fact, those who are relatively unscathed will pick themselves up, dust themselves off, begin to feel better about themselves and their future, and go out for a beer and some tunes.

Journey Awareness Persona C-Suite/Finance Restaurant