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Contortions in the Food Chain

Touch the Soil News #709 (feature photo – CC SA 4.0)

We’ve been following the restaurant scene as part of our larger food-chain awareness efforts. In an earlier news piece (#632-Restaurants in Trouble) we reported that overall, approximately 93 new restaurants opened every day in America, but 128 restaurants were closed every day. That is a net loss of 35 restaurant locations a day.

Technomic, a foodservice research and consulting company, has also been crunching the numbers. According to Technomic, the bottom line is that fewer customers are visiting restaurants less often than they were a few years ago. Technomic is scratching its head – if the economy is improving and gas prices are low, why is the restaurant industry not booming?

Adding to restaurant industry woes is the continuing buildout of new restaurants. Technomic reports that the top 500 restaurant chains have been growing new locations by an average of 2 percent a year since 2011. That’s 12 new restaurants a day. All of this while population has only grown by .7%.

To offset the declining restaurant traffic, the top 500 restaurant chains have increased their menu prices (in 2016) by 4.3 percent – turning off even more people from visiting restaurants.

In the grocery store business, the exact opposite is happening. Heavy competition between grocers is forcing system-wide deflation – cutting prices to keep customers. In America, the problem is just getting worse. Foreign discount food grocers are moving in on the American turf to fight for what seems not enough dollars to begin with (see our previous news piece #703 – Duking it Out).

The grocery and restaurant sectors of the food industry are reflecting strange but opposite economic contortions. Restaurants can’t solve their economic problems by raising prices and grocery chains can’t solve their economic problems by cutting prices.

Ironically, as folks shift to buying groceries instead of eating out, it should be better for the grocery stores. Unfortunately, this logic is not how it is playing out.

So, here is our theory about the economic contortions in the restaurant and grocery sectors. First, the physical economy is simply a reflection of the underlying financial landscape. In our estimation, contortions in the world of finance are causing contortions in the restaurant and grocery business. To be more specific, paychecks in America are insufficient in terms of numbers, size and reliability. There are too many investment dollars willing to build out new restaurants and grocery stores than paychecks will support.

Our advice: Financial volatility suggests we keep gardening and learning food growing skills.

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