Restaurant owners aren’t talking about a recession yet, but they are rolling out deals and trying not to raise prices again.
At the barbecue joint Smoke Shop, the customer who used to come three times a month now stops by twice. At Brine, summer has been remarkably slow for a seafood restaurant with a patio in Newburyport. And at Shanti, an Indian restaurant in Dorchester and Roslindale, corporate clients are trimming their catering budgets.
Restaurant owners aren’t ready to utter the “r” word yet — the dreaded recession economists keep predicting — but something’s different. Customers are fewer, checks are smaller, and not as many people are in the mood for those bon-vivant night outs.
That’s the case with Allie Duncan, a 28-year-old marketing manager who recently had dinner at the Smoke Shop in the Fort Point neighborhood. She used to eat out two to three times a week. No more.
“In recent months, it feels like the cost of eating out has gotten more expensive,” she said. “I really only go out to eat with people if it’s like an occasion, like a catch up, or something like that.”
Restaurants are an early indicator for the nation’s consumer-driven economy, as discretionary as discretionary spending can get. When consumers fear for their jobs, feel squeezed by rising costs, or become uncertain about the future, one of the first items cut from household budgets is eating out.
Nationally, the number of people visiting restaurants is down 2.6 percent for the first half of the year, according to research firm Circana, which blames the cumulative effects of high inflation and rising consumer debt. The slowdown is being felt from fine dining to fast food. Even McDonald’s has reported declining sales.
“There is definitely a softening,” said Steve Clark, chief executive of the Massachusetts Restaurant Association, which represents about 2,000 restaurants.
The question now is whether this is the beginning of a broader pullback, or a welcome cooling for an economy that was running too hot.
The economy, for now, appears solid. But weaker than expected job growth in July ignited fears the Federal Reserve has kept interest rates too high for too long and missed its chance to achieve the difficult “soft landing” — bringing inflation under control without driving the country into recession.
Not that long ago, the biggest concern for restaurateurs was finding enough workers to handle the postpandemic surge of people dining out. Now, for the first time in years, consumers are watching what they spend, said Andy Husbands, who owns the Smoke Shop, which has several locations in and around Boston.
Husbands can track business by the number of aluminum trays his restaurants go through to serve ribs, brisket, and other meats. Last year the number of trays rose 3 percent; this year that number is down 1 percent.
“People are nervous about the election, they are nervous about the economy, and everything is expensive,” said Husbands.
Restaurants have been on a roller coaster since 2020, when COVID-19 forced them to temporarily close their doors or go take-out only. Many clawed their way back with the help of government loans, while federal stimulus checks gave consumers the disposable income to keep spending.
But for restaurateurs, inflation has been relentless, squeezing profits in an industry that operates on notoriously thin margins. Restaurants have passed some of the rising food and labor costs onto customers, but that is getting harder to do as consumers spend cautiously.
Consider what happened at Brine. The price of fresh, local scallops surged so much that the restaurant needed to charge $50 for an entree of four scallops. Owner Nancy Caswell didn’t want to risk alienating customers, so she pulled the dish off her regular menu.
“I have a seafood restaurant. I should have scallops,” said Caswell, but “where’s the value for the diner?”
For Brine, business was strong in April and May, but slowed in summer. Caswell expected July to easily surpass last July, which was full of rainy weekends. Instead, July revenue was down 3 percent from a year ago.
She’s noticed customers picking cheaper bottles of wine, while others opt for drinks and an appetizer rather than ordering a full meal. She’s holding out hope that business will improve in August and September.
“I don’t know if it’s so much a recession, or if we’re due for a correction . . . but I think that restaurants tend to be the place that people escape that reality,” said Caswell, who also serves as treasurer of trade group Mass Restaurants United. “When we don’t see that kind of escapism within our dining rooms, then it’s a flag that we have to be concerned about for sure.”
To keep customers coming back, some restaurants are rolling out discounts. McDonald’s recently launched a $5 meal deal. Dine Out Boston, the semi-annual program that offers prix-fixe lunch and dinner menus, has 189 participating restaurants in August, significantly more the last year’s 148. Under the promotion, three-course dinners start at $36.
Among those participating again is Indian restaurant Shanti. But running specials and offering discounts such as buy-one-get-one free samosas are just part of the new normal to make eating out seem affordable, said Rokeya Chowdhury, who runs the business with her husband.
The restaurant stopped serving goat last year because it cost too much, and the couple has held the line on the price of their most popular dish, chicken tikka masala, which is just under $18, by raising the price of a side dish instead.
“Everyone is seeing that sticker shock,” said Chowdhury. “That is why we are being so mindful about raising prices.”
Heading into the fall and winter, which is the busiest time of year for Shanti, Chowdhury is worried companies, also contending with a slowing economy, will continue to pull back on catering, which represents about 20 percent of revenue. Companies often order from Shanti in November to celebrate the Indian holiday Diwali. Shanti plans to do more outreach and offer incentives to get companies to commit early.
“A lot of companies are dialing down on their budget, not hosting as many things,” Chowdhury said.
Some restaurants haven’t experienced a slowdown so far, but they don’t know how long they can avoid it.
For Clayton Turnbull, a longtime Dunkin’ Donut franchisee with more than two dozen locations in the Boston area, falling sales at McDonald’s and Starbucks haven’t gone unnoticed. He anticipates the competition for customers will only get fiercer.
“We are doing fairly well,” said Turnbull, “but we are not comfortable.”
To read the full article Click Here
Comments