National Crisis Impact: Restaurants (Historical)
The US restaurant industry has been severely impacted by historical national crises. Crises such as Hurricane Harvey and the 2008 recession, show that restaurant franchises and family-owned restaurants are equally intensely impacted. Restaurants with preexisting disaster relief plans are better equipped at returning to profitability after a crisis.
Historical Crisis' Impact on Restaurant Industry
- National disasters, including recessions, cause 40% of small businesses such as restaurants, to fail.
- In 2017, Hurricane Harvey impacted Houston, Texas' economy severely. Singling out restaurants, especially small family-owned restaurants. FEMA argues that at least 40% of small businesses, including restaurants, will never be able to recover from a disaster.
- During a national disaster including hurricanes, flooding is a major impact on business. During Hurricane Harvey, flooding caused a power shortage, causing restaurants to throw away the food that had gone bad in their fridges and refrigerators. The loss of product, making rent, and payroll plays a major factor in the financial aspect of the impact of a national crisis in the restaurant industry.
- During a national crisis, public systems are often impacted severely. A public structure that is often impacted by natural disasters, and consequentially decreases foot-traffic in restaurants is the public transit system.
- Economic declines and recessions impact the restaurant industry severely. In 2008, Dow Jones US Restaurant and Bar's index fell 13%. This index includes food industry conglomerates including Starbucks and McDonalds. Indicating that franchise and family-owned restaurants are both impacted greatly during a national crisis.
- During the 2008 recession, Ruby Tuesday Inc's shares dropped 85% while The Cheesecake Factory's shares fell 65%. This shows the drastic effects of a negative economic event has on the restaurant industry.
Adapting to a National Crisis
- When adapting to a national crisis, restaurants have to consider both their incoming and outgoing cash. The financial strain on the restaurant servers is something that the host restaurant needs to adapt to. In Texas, the median wage for a tipped server is $2.13/hour. Restaurant owners adapt by either paying their workers are subsidized pay or laying off their workers in order to make rent.
- Peli Peli, a Houston based restaurant, adapted to the hurricane by opening up their kitchens and workforce to feed first-responders. Indicating, that restaurants not only have to adapt to the stain in their incoming cash, but also have the opportunity to help their local community adapt to the crisis itself.
- During the 2008 crisis, fast-food chains that lowered the prices of items on their menu performed better than restaurants who refused to change their prices. Understanding the economic strain on customers during a national crisis can help restaurants positively adapt to consumers.
Back to Normal
- A small business with minimal or moderate damages will recover in a span of 14 days. Recovering from substantial damage can require a few months or a few years in order to get everything back to normal.
- Reef, a restaurant in Houston's relief plan included claiming the damages done to the restaurant to their insurance company. The plan also included hiring volunteers and extra employees to help fix the damages in order to get the business back to normal.
- Charity is a staple in relief plans. After the damage was done by Hurricane Katrina, chef Alex-Brenan Martin, was able to raise more than $1 million for small businesses and restaurants impacted by the hurricane.
- Restaurants with preexisting disaster recovery plans are better equipped in being profitable again after a disaster. After Hurricane Harvey, Waffle House only had to close 3 of their locations in the impacted area. CEO, Walt Ehmer, claims this is due to their disaster preparedness.
- Strategies to return to profitability after a disaster include "writing a communication plan, keeping customers informed, detailing inventory, and creating a vendors list." Having these plans already created, and keeping managers informed about the disaster relief plans, increasing the likelihood of profitability after a disaster.
- After the 2008 recession, it took approximately a year for restaurants to recover. Restaurants recovered their profitability by waiting for the consumers to financial heal themselves as this plays a big part in customers deciding to eat out. In the beginning of 2010, restaurants hired 42, 500 employees to meet the demand of the returning business.