Abraham Zaiderman Predicts GDP Forecasts Will Boost Restaurant Industry

Abraham Zaiderman Predicts GDP Forecasts Will Boost Restaurant Industry

The 2008 financial crisis took its toll on the restaurant industry. Industry growth has been stagnant in the years since. Industry analysts have finally started to make more optimistic forecasts for 2018 and beyond.

In 2017, the National Restaurant Association estimated that restaurant industry revenues increased by $799 billion. This translates into a growth rate of 4.2%. The average annualized growth rate over the past few years has only been 1.7%, so the outlook has clearly become much brighter.

Abraham Zaiderman, a seasoned restaurant industry analyst, says the growing economy is one of the biggest factors. Over the course of 2017, annualized GDP growth in every quarter was around 3.1-3.2%. This was a stark improvement from the previous few years.

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The growing economy has a strong impact on the restaurant industry. The vast majority of restaurant purchases are discretionary, so demand is highly dependent on the state of the economy. During recessionary periods, most consumers will cut back on restaurant purchases before anything else. On the flipside, revenue in the restaurant Industry will outpace other sectors during a robust economic recovery.

Of course, strong economic growth isn’t the only factor driving the restaurant industry. B. Hudson Riehle, the Senior Vice President of Research for the National Restaurant Association, suggests that economic growth itself isn’t the real driving force. GDP growth is often correlated with lower unemployment and real wage growth. These factors increase the average household discretionary spending, which is the ultimate driver of restaurant industry revenue. However, the relationship between these factors and economic growth isn’t always very consistent, so the restaurant industry doesn’t always benefit from a higher GDP.

During the first couple of years of the economic recovery, many of the economic gains were concentrated in the hands of a small portion of the top income earners. Since these citizens were unlikely to use their income on eating out, restaurant industry revenue growth remained relatively stagnant.

This has begun to change in 2017. Economic gains have been more widely spread across all income groups. Elasticity of demand is significantly higher among working and middle-class households, so their increased wealth has translated into stronger industry revenue in 2017.

The ultimate question is whether long-term economic growth will remain steady in 2018 and whether those gains will continue to benefit the restaurant industry. According to most macroeconomic analysts, GDP growth is expected to rise between 2-3% over the next year. In other words, it may drop slightly from its 2017 levels before stabilizing. Overall, the outlook is promising, since these growth patterns correspond with low inflation and no signs of a deflationary recession.

Restaurant industry revenue growth may also be more modest in 2018, but it could also accelerate. Growth in discretionary spending isn’t the only factor that will affect demand. The industry will also depend on consumer confidence.

Many consumers have been cautious about making unnecessary purchases even as their real incomes rose. They fear that another economic downturn or change in their industry can put them back on the unemployment rolls. Consumer confidence appears to be improving, which is likely to spur discretionary purchases and lift restaurant industry revenues.

“Millennials are also going to make an impact in the restaurant rebound,” says Zaiderman in places like New Jersey (for young professionals priced out of New York City) and Philadelphia, which is undergoing a renaissance of sorts over the past decade, demand for apartments and amenities are also contributing to local restaurant growth.  For example, apartments in North Bergen in New Jersey and apartments in Philadelphia are surrounded by local eateries and national chains that are filled every night, since many Millennials prefer convenience and community over cooking at home and eating alone.

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