“Restaurants dangle cheaper drinks but risk watering down their profits,” Wall Street Journal
“Eat, drink, and spend money: Restaurants ply diners with cheap booze,” Daily Finance
The headlines above remind us of the old joke about the business owner who sold his products at a loss:
“How can you make money selling each item at a loss? Easy, I’ll make it up in volume.”
Unfortunately, this is the kind of logic that can prevail during times of overcapacity. With all of us watching our pocketbooks these days, the retail dining sector may have become too big (and failing).
It’s getting smaller, of course. Bennigan’s, Steak and Ale, Bonanza, and Black Angus Steakhouse are some of the larger names that have seen all or many of their doors close since the onset of this recession, and they have been joined by countless mom and pop establishments. Fortunately, the South Sound has not been hit as hard as other areas of our state and nation.
Even so, the survivors are having a hard time filling their tables and are having to slash their prices and offer incentives as a result. The Wall Street Journal writes,
Restaurant chains, hit hard by the economic downturn, are walking a tight-rope, dangling cheap alcoholic drinks to attract customers at the risk of diluting some of their most profitable sales….
For restaurants that rely on the sale of alcoholic beverages to boost sales and income, the recession has been devastating. Chili’s reported that same-store sales declined 9.4% in its quarter ended June 24, while Morton’s reported a 26% decrease in same-store sales in its quarter ended July 5.
This is what deflation looks like in the modern economy. It’s not all bad, especially if you have a stable source of income and you enjoy an adult beverage with your dinner. But there are consequences. Restaurant owners will continue to face a brutally competitive environment going forward, and more are likely to fail, or at least close more of their less profitable locations. Retail landlords could be left without tenants, and neighborhoods could lose their favorite gathering places.
What can we do about this? More than you think even though it is likely to happen whether we want it to or not. Support your favorite local business, especially the little guy – grass roots support is rarely a bad thing. Additionally, we can prepare the best we can by preserving our capital and taking advantage of opportunities as they become available. Who knows, perhaps the bankruptcy of another large restaurant chain will provide a great new business opportunity for an entrepreneur who can supply a good meal cheaply to young families or to aging Baby Boomers. In capitalism, with every crisis comes an opportunity!
LPL Financial Planner
Cornerstone Financial Strategies LLC