Thursday, April 2, 2009

The Turn Around in Restaurants is Here

As with any economic contraction, each industry goes through a contraction period where businesses fail in large numbers while the strong businesses get creative at reducing costs and turning a profit. There is a point where the contraction begins to end. This point is identified not when restaurants stop closing; rather when the sales of the surviving restaurants begin to increase. This is the leading indicator. It doesn't mean restaurants won't continue to shut-down, it means the shutting-down trend will slow in the coming months followed by a flattening period for a year.

In recent weeks I have spoken to dozens of restaurant owners and the tone in all my conversations is sales are up. Perhaps this is in part due to tax refunds hitting the bank accounts this time of year and in part due to consumer confidence increasing. Whatever is causing it, it is good. But is it sustainable? I don't know. But it certainly is better than what's been happening in the past 18 months.

In terms of restaurants purchases we should see this translate into buyers finally jumping into the market place and buying those jobs. We're seeing buyers making offers, albeit low ball offers right now; but nevertheless offers. The smart buyers will see the current price levels as absolute bargains and start picking up these steals as people are picking up those home bank repos.

The brokerage industry is no different than any other industry during an economic contraction. In 1997 real estate agents tried to get into our business. In 2008 they all died. In 2008 business brokers started to die as well; in part because the real estate agents, who knew nothing of this business and under priced their commissions and understated the work and risks, cut into the business brokerage commission pie hurting the existing business broker base.

So the broker with the most inventory will start to shine once the turn-a-round comes. Those brokers who cut back marketing and advertising and have low listing inventories will die on the vine just like all those restaurants that have died in the past 2 years.

Creativity, problem solving and perseverance will guarantee success.

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Steve McFarland said...

Indeed, prosperity covers a multitude of poor operators and poorly run businesses, i.e. when times are good and spending is up, the fringe players can survive, however, as sales begin to slow, and consumers become very decretionary with their spending, the marginal players are exposed and begin to desolve and fall off.
Let's call it the "economic" thinning of the herd, as it were, leaving the others to become stronger and thrive. However, let it be noted, that just surviving an economic downturn is no guarantee of future success or even continued survival, but rather affords one the opportunity to re-evaluate the economic horizon in terms of your product, marketing and future growth, to metion a few. Restaurant owners often become caught up in the smaller daily operational'battles', while failing to see the larger economic 'war' picture looming ahead. Taking steps such as; re-freshing or evolving your business plan to reflect the current economic climate, refreshing or adding new menu items, looking 'outside' the box for additonal profit centers, knowing and expanding your market base, are just a few ways to help insure future success and survival.

Mel Jones said...

In today's world of "the old ways don't work" mentality we're faced with challenges never seen in the history of capitalism as our government and leaders start this class warfare against the so called rich I can't help but sense that we'll never be back at the same consumption levels we were at a few years ago. Those consumption levels are what created the record low unemployment, record personal income and record home ownership. What level will that be, I can't predict. How will it affect us is clear. There will be fewer retail purchases, fewer retailers, fewer manufactures, and fewer jobs as a result of our permanent lowered consumption rate. Where do we go from here is anyone's guess.