The global economy is projected to grow by 1.7 percent in 2023 and 2.7 percent in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 percent of advanced economies and nearly 70 percent of emerging market and developing economies.
During an economic recession, restaurant investment may be affected in several ways. On the one hand, a recession can lead to a decline in consumer spending, which could result in fewer customers visiting restaurants and a decrease in revenue for restaurant businesses. This could make restaurant investment less attractive for potential investors, as they may be less confident about the ability of a restaurant to generate profits in a challenging economic environment.
In some cases, economic recession can lead to increased food costs due to supply chain disruptions, shortages, and other factors. This can put pressure on restaurant profit margins, especially for businesses that rely heavily on certain types of ingredients.
Impact of Recession on Restaurants
During a recession, many people may be looking for work, which could make it easier for restaurants to find and hire employees. However, if the recession leads to a slowdown in business, restaurant owners may need to lay off staff or reduce hours, which can hurt employee morale and retention.
On the other hand, some investors may see opportunities in investing in restaurants during a recession, as distressed restaurant businesses may be available at a lower cost, and there may be less competition for prime real estate locations. Additionally, restaurants that are able to adapt to the challenging economic conditions and offer high-quality food and service at affordable prices may be able to thrive during a recession and attract customers who are looking to save money by eating out less frequently.
“With industries across the world facing economic headwinds, it goes without saying that restaurants and hospitality organizations across the world will face a tough time going ahead. With the IT industry laying off large swathes of its work force and commercial bank feeling the pressure, much of the world seems to the be bracing for economic doldrums and the restaurant industry is no different,” shared Teja Chekuri, Managing Partner at Ironhill India.
However, he feels that some businesses, the innovative ones may choose to reposition their business, come out with innovative offerings or use the power of social media to boost their online footprint and consequently sales.
“Considering that consumers become extremely selective should they choose to dine out during an economic downturn, a healthy mix of the old strategy, the right price, product mix and promotion, and a robust social media presence could help restaurants surf the tide,” Chekuri further shared.
How to Sail over Tough Times
The food industry has a history of being resilient during economic downturns and has been able to adapt to changing market conditions. The recent pandemic is a prime example, where the industry pivoted to takeout and delivery options, as well as implementing safety protocols to ensure the safety of customers and employees. While an economic recession may present challenges for the food industry, it is not likely to slow down significantly.
However, during a recession, there may be micro changes related to menu pricing, operating models, and cuisine preferences that are necessary to suit market conditions. Restaurants that can offer high-quality food, exceptional service, and unique experiences may be able to differentiate themselves from competitors and attract customers despite economic challenges. It is also essential for restaurants to adapt to changing consumer preferences and implement cost-cutting measures to weather the economic downturn and emerge stronger when conditions improve.
Is it the Right Time to Invest?
According to Chekuri, though the restaurant industry is a tough segment to compete in, investments are safe. “If you are able to have a tab on the future, analyse the upcoming challenges and opportunities and devise an innovative strategy to weather the storm. Like we saw during the pandemic era, the organizations that are able to weather the early storm and sustain themselves, usually come out of those tough times healthier than before and tend to flourish once the economy takes the upturn,” he said.
Devanshi Tripathi, founder & CEO of TripGo Hospitality feels that despite the pandemic, the restaurant industry has seen significant growth, making it an ideal time for new restaurants and brands to emerge. The impact of the global economic recession on the restaurant industry in India has been less severe, presenting a good opportunity for new investments and expansion in the F&B industry.
Tripathi further added that as a F&B brand, the company is in line with the changing dynamics of the industry and are confident about sailing through the tide with a consumer-centric approach. The industry prediction for 2023 looks promising, with emerging trends of health-focused brands and local sourcing of products becoming the accelerators for industry growth.
Oyster, Bar & Kitchen, the flagship brand of TripGo Hospitality has recently expanded its seating capacity from 150 to 250. Owing to the popularity, TripGo is looking forward to replicating the success of Oyster, Bar & Kitchen with new outlets in Bengaluru and neighboring F&B hubs like Pune and Goa.
Kushang, CEO of SupplyNote feel that while investing in restaurants during an economic recession can be risky, it is not impossible to succeed. Investors should carefully analyze market conditions, adapt to changes, and focus on delivering high-quality products and experiences to customers.
Overall, the impact of an economic recession on restaurant investment will depend on a variety of factors, including the severity and duration of the recession, the specific market conditions in the restaurant industry, and the ability of restaurant businesses to adapt to changing economic conditions.