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Are we living through a “restaurant recession”?

The restaurant industry has seen 8 consecutive months of decreased sales. The question many are asking is: why?

Let’s look at the numbers. The nation’s real gross domestic profit (real GDP) increased at a rate of 3.2 percent in the third quarter of 2016, up from the second quarter where it rose by 1.3 percent. The average income in the U.S. also increased by 0.4 percent in October 2016.

These statistics show that the economy is on the rise and that Americans have more money to spend. But if they have extra money, why aren’t they dining out?

Let’s take a closer look—starting with the issues facing the nation and then seeing how they affect you.

Paul Westra of Stifel Financial Corp. stated in an interview that during the second and third quarters of 2016, industry earnings fell by about 4 percent. Research from The NPD Group backs this up, showing that total restaurant traffic was flat in the second quarter of 2016.

Why are restaurant sales decreasing?

The main reason for this decline isn’t that there are too many restaurants in your neighborhood. Instead, it begins with shifting consumer behavior. Meal kit options such as HelloFresh and Blue Apron are increasing in market share and are expected to generate about $1 billion in revenue by December 2016. On top of that, grocery store prices have also been dropping consistently this year.

This is about more than restaurants.

In the interview mentioned above, Paul Westra said, “In the past, restaurants have led the market lower during the three- to six-month periods prior to the start of the prior three U.S. recessions.” Restaurants could be signaling the start of a 2017 recession.

If you improve lunch, you could improve the economy.

Mom always said that breakfast was the most important meal of the day, but it turns out that lunch is. The area most hit by declining sales throughout 2016 has been lunch. The NPD Group reported that lunch visits during the second quarter slipped 4 percent from 2015.

Lunch represents about one-third of all visits to restaurants, and this decrease is clearly represented and reflected in the bottom line of the industry slump.

How a Massachusetts restaurant turned its lunch program around.

Branch Line is neighborhood rotisserie and wood-fire grill in Watertown, Massachusetts, just outside of Boston. They reviewed their feedback and sales and confirmed that guests loved the food, service, and ambiance of the restaurant at lunch and dinner, but the staff noticed that while their dinner program grew, their lunch program suffered.

Branch Line concurred that if they lowered check averages and raised covers, they would turn a profit. They used Upserve to learn what menu items were the most popular, and revamped their menu accordingly. Over the initial 5-week trial period, Branch Line’s lunch check average decreased by 2.75 percent, and covers increased by 4.01 percent. The team didn’t do any marketing over the trial period to drive these changes.

Understanding your restaurant’s strengths and areas for improvement are the first steps toward thriving during these tough economic times. Upserve and Upserve POS are here to help you spend less time online and more time on the line. Chat with us by signing up for a demo below.

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Hannah can be found riding the slopes of New Hampshire by winter and riding the waves of Rhode Island by summer. In order to satisfy a constant sweet tooth, you can find her bouncing between Ellie's Bakery and Pastiche, both in Providence, RI.
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