We’ve just been through America’s belle epoque of restaurants.
What’s more, the party is over and most of us are blithely unaware. The restaurant industry is frequently the precursor for a market correction, an early harbinger of a bear market or even a recession to come. And some experts are saying that an unfortunate confluence of factors - oversaturated restaurant markets, rising labor and food costs, weak sales, changing consumer tastes and loyalties, a shrinking middle class, declines in mall traffic, bank and investor skittishness about returns on investments - means the near future looks bleak.
This is the thesis of “Burn the Ice: The American Culinary Revolution and Its End,” a new book by James Beard Award-winning food journalist Kevin Alexander.
Alexander argues that, starting in 2006, we experienced a transformative period for the U.S. restaurant industry.
He ticks off some of the innovations: the rise of “fine casual dining” (those restaurants with dangling Edison bulbs and exposed brick and in-your-face ambitious food that doesn’t lean overmuch on fine linens or fancy stemware), craft cocktails, farm-to-table dining, the hipification of non-Western food, the audacity of food truck culture, the democratization of criticism via social media.
But now we should prepare for a shake-up.
“There are too many restaurants,” Alexander said in a phone interview. “There hasn’t been a recession since 2008, and a recession gets the people who aren’t serious out of the way. Austerity breeds creativity.”
He is not alone in this prediction. David Henkes, a senior principal at food service industry analyst firm Technomic, says that for a number of years, the rate of restaurant growth has exceeded population growth.
Too many restaurants are chasing too few consumer dollars, he says. Part of this is because of demographic changes. People age 35 to 54 go out to eat most often. Younger than that and they may not have enough earning power or may be saddled with student loans; older than that and careers are winding down and there may be less travel or disposable income.
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“In 2007, 41 percent of consumers were in that sweet spot; today it’s only about 34 percent,” he says, adding that we’re still five to seven years away from the huge millennial generation fitting neatly in the spending sweet spot.
Problem is, restaurants can’t just eke along until then. Subway closed 1,100 locations in 2018, and Starbucks aims to shutter 150 underperforming stores this year, according to Amanda Topper, associate director of food service research at market research firm Mintel. And “fast casual,” order-at-the-counter restaurants are in a far better position than full-service casual restaurants.
Henkes thinks the restaurant market is overbuilt. And while he predicts a raft of closures of wobbly chains and individual locations, he says dining out is an ingrained consumer behavior in 2019 and unlikely to diminish significantly across the board. Even during the recession of the last decade, dining out was a relatively cheap way to indulge, the way lipstick sales spiked during the Great Depression.
“People aren’t suddenly going to learn to cook in the next three years,” Henkes says. But “there’s a dichotomy in dining behavior. You’re either convenience-driven or experience-driven. Casual dining is caught in the middle.”
He says consumers are eschewing the big casual chains like Applebee’s in favor of local, chef-driven independent restaurants. But even those appear to be on shaky grounds in many markets.
Alexander says part of the reason local, chef-driven independent restaurants may be struggling is that we’ve entered what he calls the age of the operator.
“The gestation period to develop new ideas in Portland in the middle of the last decade was years,” Alexander says. “Now if you don’t have your act together in three months, someone is going to take your idea and own it. It doesn’t matter where they live, if they have the resources and skill to execute better than you can, anyone can plagiarize you.”
When Instagram and Yelp are crowded with 300 pictures of your latest dish or cutting-edge bar decor, imitation isn’t just a form of flattery; it’s intellectual theft that is entirely legal and impossible to prevent.
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Greg Baker is one of Florida’s most celebrated chefs, and the Refinery, his farm-to-table restaurant in Tampa, has been heaped with accolades. But the restaurant is struggling, because of market saturation and high labor costs, and Baker is trying to sell it.
“Everything has gotten more expensive, but nobody has any more disposable income than they did before the recession, so you can’t adjust your prices. There’s a lot of value shopping these days, people looking for giant plates of food for $9,” Baker says, adding that the dining public isn’t willing to pay more for name-brand local produce and proteins and has tired of farm-to-table menus.
“The point gets lost when every menu has a list of the provenance of their ingredients. No one wants to be lectured about their food,” Baker says. “I’m tired, I’m beaten up. This has run its course.”
In an industry where profit margins are frequently in the single digits, adding in food delivery options such as Uber Eats or DoorDash originally seemed to offer an added revenue stream without the expense of extra kitchen staff, expanded hours of operation or additional equipment. Growth in that area has been explosive: Henkes says last year $10 billion in revenue was generated by third-party delivery companies. But, says Henkes, at some point delivery cannibalizes existing restaurants.
Most third-party delivery services are charging 25 to 30 percent, which squeezes restaurants’ profit margins further. For a small independent restaurant it’s tough. Baker lost money on delivery.
Cultural appropriation of food is another trend Alexander sees that takes away from a progenitor (think Prince’s Hot Chicken in Nashville, an incendiary marinated-then-fried local invention that commands cultish devotion) and homogenizes food nationally (KFC hot chicken!).
An argument could be made that if fine-dining restaurants disappear, to be replaced by cookie-cutter fast-casual spots, not much is lost but elitist clubhouses for the 1 percent. But they are the incubators of new ideas, says Alexander, “the academic chapels of learning.”
“They don’t need to be for everyone, they shouldn’t be. It’s almost like couture lines: Fashion houses lose money on them, but that’s what pushes fashion forward. You need those to exist in food,” Alexander says, alluding to the famous blue sweater scene in “The Devil Wears Prada.”
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And while Alexander laments the passing of the hip fine-casual chef-driven restaurants in his book, he thinks they may be partly responsible for their own demise.
“When we started to think everything was all about the food and who cares about the service and decor, it opened up a dangerous Pandora’s box. The logical extension is ‘fast casual’ - who even needs waiters? It was a failure to appreciate the full dining-out experience.”
But Alexander is hoping for a pendulum swing back in the other direction.
“I hope it will come back around to the simple sit-down restaurant that cares about service. And maybe I’ll check my phone with the phone-check person. And I’ll be invested in the meal and the conversation.”