Running a Restaurant in a Recession: Build a Thriving Eatery

Declining economic activity can have a serious impact on eateries and other food service businesses. Running a restaurant in a recession can be challenging but it can also make the business stronger and well-prepared for turbulent times. In order to minimize the effects of economic stagnation, restaurants need to be adaptive and improve their efficiency. In this post, we’ll share more about the positive and negative effects of a recession on restaurants. If you’re curious about the impact of different economic policies and conditions on food service businesses, read our posts on restaurant inflation and the effects of tariffs on restaurants.

Key takeaway: Although businesses in the food and beverage industry are less upset by the decline in economic activity, the restaurant sector can be seriously affected. Businesses need to prepare for different negative scenarios by adapting to current market conditions.

What Is Restaurant Recession

During periods of negative economic growth, increased unemployment, or other economic turmoil, it’s rare for only a single sector to be affected. That’s why a restaurant recession is not very common. However, during periods of high uncertainty, supply chain disruptions, increasing unemployment, or inflation (check out how to deal with inflation in a business), restaurants experience a recession as well. Here are a few reasons why a restaurant recession might occur even though the broad economy grows steadily.

1. Over-saturation can be very challenging for business owners in the food service sector.
2. Changes in work habits such as increased remote work can lead to reduced revenue for restaurants near office buildings.
3. Trends and consumer behavior shifts such as food delivery, trendy diets, or increased eating at home can also impact food service businesses negatively.

Negative Effects of a Recession on the Restaurant Industry

Recessions or other periods of economic turmoil are associated with their negative impact on consumers and businesses. Here are some of the negative effects of restaurant recession and decline in economic activity.

1. Reduced customer traffic, fewer reservations, and fewer online orders;
2. Decline in customer spending and lower average checks;
3. Soaring prices of food and labor can lead to increased cost of goods sold and reduced profitability;
4. Supply chain disruptions can increase procurement costs and pose a threat to inventory management;
5. As economic turmoil affects all businesses, many choose to reduce their prices or introduce special deals. This leads to increased competition for a shrinking market.

Positive Effects of a Recession on the Restaurant Industry

Although there are many negative effects of restaurant recession, it can also be beneficial for the niche market in the long run. Here are some of the positive effects recessions can have on eateries and other food service businesses.

1. During turbulent times, companies need to improve their efficiency in order to keep their profit margins. A restaurant recession can be an additional reason for eateries to change their business strategy or work on efficiency in other ways.
2. Economic turmoil often leads to new opportunities for business owners and entrepreneurs. For example, some businesses might be put for sale or lucrative real estate spaces might become available.
3. Market consolidation is often an aftermath of a restaurant recession. Well-prepared eateries can outlast overstretched or ineffective businesses. Thus, building a recession-proof business will not only help you survive during hard times but also have the potential to increase your market share. 
4. Innovations and new business models. During an economic downturn, businesses often need to change and adapt. For example, during the Covid-19 lockdowns, many eateries discovered the benefits of online food orders and using a commissary kitchen. During a restaurant recession, it is paramount to integrate innovations like QR codes for restaurant menus or automate inventory management. Furthermore, some restaurants might decide to change their business model to reflect current challenges and trends. For example, becoming an allergy-friendly restaurant can make you stand out from the rest.

How Restaurants Can Prepare for a Recession

In order to be ready for turbulent times, a food service business needs to have a thorough restaurant risk management plan. This document outlines the main goals and tasks in different scenarios. Here are some tasks restaurant owners can do if they expect an economic downturn in the near future.

1. Analyze costs and minimize waste. Consider renegotiating wholesale prices with distributors and optimizing efficiencies to minimize any waste.
2. Building customer loyalty is very important. Having regular clients can help your company minimize the impact of declined economic activity. That can be done through a loyalty program, email marketing, or memberships.
3. Diversify supply chains. During a recession or an inflationary period (see more about the impact of inflation on businesses), supply chains are often disrupted. Make sure to diversify your food and agricultural supply chains to minimize that risk.
4. Investing in technologies can lead to increased productivity and better performance. That includes automation in various fields of your restaurant business or more focus on online reservations, ordering, and advertising.
5. Consider adding new revenue streams to your business. Restaurants can rent out their premises as ghost kitchens to other businesses. They can also sell merchandise or partner with other brands. Organizing events such as workshops and training can also bring additional revenue to a restaurant business.

Frequently Asked Questions about Restaurant Recession

From content on the effects of high interest rates on businesses to guide on wholesale restaurant supplies, business owners and managers can find multiple useful articles on BlueCart’s website. Check out the answers to some common questions regarding restaurant recessions and their effect.

How the Different Types of Restaurants Fare During Recession?

Although a recession might be damaging for some eateries, others might do well during periods of economic turmoil and recovery. Fine dining establishments are considered to be among the most negatively affected during a restaurant recession. That’s because of their high value and higher-than-average prices. Customers of such establishments might switch to casual dining eateries. On the other hand, clients who frequently visit casual dining restaurants might opt for fast food chains or fast-casual restaurants. During economic turmoil, most restaurants aim to offer affordable options on their menus.

What Is a Recession?

The term refers to a broad decline of economic activity across multiple sectors. An economy is considered to be in a recession if GDP has negative growth (the economy shrinks) for a few consecutive months. Some periods of recession can last for about 6 months while others have a more prolonged effect and the economy may need years to recover. Recession affects virtually all sectors of the economy as it often goes side by side with an increase in unemployment and reduced consumer confidence and investments.

What Sectors Are Hurt the Most During Recession?

Non-essential goods and services suffer the most during a recession. That includes products like luxury items and home decor. Services like travel and hospitality also see the biggest decline. On the other hand, staple products like food keep a fairly constant level. However, consumers might opt for more affordable food options. The restaurant industry needs to adapt to economic conditions by offering more affordable items on its menus and discounted meal pairing options. Periods of economic recession can act as medicine for the economy as only the strongest businesses survive through them.

BlueCart: The One-Stop Wholesale Shop for Businesses

Whether your business suffers from the impact of a restaurant recession or other types of economic turmoil, wholesale ordering can help you improve efficiency. Furthermore, BlueCart’s solutions also allow restaurant businesses to analyze their inventory and improve planning. Specialized and broadline distributors can also benefit from BlueCart in various ways. From easy creation of eCommerce catalogs to increase in B2B sales. Schedule a demo and see why BlueCart is the premium wholesale ordering software your business needs!