Are Restaurants Going Through Recession

Are Restaurants Going Through Recession
Restaurants can further invest in technology like data analytics to help refine their operations.

By Sakshi singh , Contributory Author

29 Jul 2022 | 9 min read

With the Great Recession in our rearview mirror, consumer confidence was high as we began the second decade of the twenty-first century. But then a global pandemic happened and restaurant owners new, old and future had no idea what to expect. Shelter-in-place orders, social distancing, contactless delivery and a host of other terms and practices that have become commonplace were not part of our daily vocabulary or business plans before the coronavirus pandemic.

The Indian food services market witnessed a 53 percent de-growth in FY2021 compared to the previous fiscal. The economic downturn has led to the closing down of numerous Indian restaurants which tickle palates across the streets. With a potential recession on the horizon, though, experts say operators shouldn’t let memories of the prolonged recession a decade ago shade today’s decision-making. 

Early Signs of Recession

Amidst job losses in various sectors, there has been a sharp decline in people eating out in Indian restaurants and pubs. Several pubs have also closed down in recent months across the country with people preferring to imbibe alcohol or entertainment at home. Besides a falling number of consumers, restaurants have also been hit by higher prices of ingredients and tougher back-migration that make it difficult to recruit chefs who went back home.

A growing number of analysts, investors, and executives are bracing for an economic downturn stating it’s going to be hard to avoid some kind of recession just given the magnitude of the slowing that takes place. However, the best advice for preparing for a potential recession is the same as his guidance for operating a restaurant in boom times: Operators always run their restaurants like they’re about to sell them.

What do Experts Anticipate Out of a Recession?

When the next recession hits, customers will drastically cut down their restaurant frequency. Rather, many will save cash by trading down, whether it’s from casual dining to fast-casual restaurants, or from fast casual to quick-service brands.

"During the global recession of 2008 and even in the 2015 to 2018 phase, we did not see a slowdown in people's eating habits. Currently, with consumers seeking to spend quality time meeting up with their friends and family out of home, the numbers have grown stronger than pre-Covid times. However, we continue to evaluate how consumer behavior and inflation may shift, though based on all indications remain bullish in the next few years of growth,” Karan Kapur, executive director, K Hospitality Corp feels.

So far, the industry’s outlook on the economy remains mixed. “The only thing that’s for sure is that as the economy slows down, the consumer does become much more deliberative in their restaurant spending, along with all their economic spending,” a local cafe owner from Indore said adding that there’s not a large margin of error for the typical restaurant operator.

Factors That Will Influence Early Recovery

That’s telling, as the foodservice industry is among the first to feel the pain of a recession and the first to know when the economy is finally climbing out of one, F&B investor, Purab Sharma said. He said operators should probably sock away some extra cash in preparation. But he warns that too much austerity can be counterproductive. It’s especially important for restaurants to meet their customers’ basic expectations of service, cleanliness, and food quality during a downturn.

He doesn’t expect to see as much in the way of value wars during the next recession. But savvy operators will grow more creative with their loyalty programs, social media, and delivery to hold onto customers.

“Personally, as a business owner, you can never have a recession in the restaurant business and time and again we have seen that even during peak pandemic times. Across India, in a few states when they relaxed the delivery hours of certain businesses during the pandemic times restaurants have seen the most sales as customers wanted to eat out and were waiting to step out and dine. You can never see a recession in the F&B sector,” Krishna Reddy, co-founder, of Autumn leaf bistro, Goa commented.

Focus on Millennials

To weather the next economic storm, restaurants must work harder to appeal to millennials, who spend more on dining out than any other age group. Millennials are less likely to cut back on restaurant spending, making them a crucial consumer group during both good times and bad.

Restaurants can further invest in technology like data analytics to help refine their operations. And to target millennials, brands should think about the experience as much as the food. That can mean something as simple as adding a trivia night or providing a local, must-try specialty dish that’s just as popular on social media as it is in the store. 

“The F&B industry is currently on the rebound, said Karan Jain, CEO, Aloha International BrewPub. “With words like revenge dining, revenge tourism, etc becoming mainstay conversation, almost all restaurants are doing well. That being said this applies to structured, organized offerings where the experience is delightful for the customer. There is still a consolidation, where the non-serious players will get left behind,” he added.

Adaptation of Technology: The Ultimate Savior

But as overwhelming as a recession can seem, operators can take relatively small steps to stay ahead. Things as simple as consistent service and store cleanliness can help brands retain customers.  

Before the last recession, the restaurant industry was pretty old-fashioned. Beyond simple websites, few restaurants were utilizing technology in any meaningful way. After the recession, whether due to technologically savvy consumers’ demand or restaurants trying to set themselves apart, businesses began to realize the power of harnessing technology. Brands started to create their own apps so people could more easily access menus and order food. Self-order kiosks began popping up. Third-party delivery apps gained popularity.

The ability of owners and brands to adapt quickly to a changing landscape will be a differentiator for restaurants from here on out, and largely determine whether they thrive, survive or take a nosedive.

With the Great Recession in our rearview mirror, consumer confidence was high as we began the second decade of the twenty-first century. But then a global pandemic happened and restaurant owners new, old and future had no idea what to expect. Shelter-in-place orders, social distancing, contactless delivery and a host of other terms and practices that have become commonplace were not part of our daily vocabulary or business plans before the coronavirus pandemic.

The Indian food services market witnessed a 53 percent de-growth in FY2021 compared to the previous fiscal. The economic downturn has led to the closing down of numerous Indian restaurants which tickle palates across the streets. With a potential recession on the horizon, though, experts say operators shouldn’t let memories of the prolonged recession a decade ago shade today’s decision-making. 

Featured Collections

  • Retail and Business
  • Technology
  • CPG
  • Food Service