If Starbucks, which sells an addictive staple at an only somewhat upmarket price point, is having to retrench, it’s a no-brainer that other consumer discretionary spending is taking an even bigger hit. But to date, the results are mixed. Movies, which in many places don’t require much driving, are holding up well. And they did very well in the Depression, although that may have been due in part to the fact that many (or so my mother reports) were air conditioned.
But restaurants take it on the chin early. Even so, rising food costs have taken them out earlier than might normally occur in a slump. In supposedly-not-too-badly-affected Manhattan, quite a few restaurants are shuttered, some with the storefronts still vacant, some with completely different merchants in the space, and a brave few with replacement eateries.
The Times tells us the same pattern is playing out nationally, with the price point above fast food suffering the most.
From the New York Times:
Several national restaurant chains were shuttered on Tuesday…The parent company of Bennigan’s, an Irish-themed bar and grill with about 200 sites across the country, filed for bankruptcy…
A sister brand, Steak & Ale, will also close. Franchise units of Bennigan’s will remain open for now….
The restaurants are the latest casualties in the so-called casual dining sector, considered a cut above fast food. Soaring food costs and a surfeit of locations have hurt the companies’ bottom lines just as Americans are choosing to take more meals at home….
Trips to the mall or the local tavern — the casual outings that provide much of the business for midtier retailers — are falling by the wayside, analysts said, as gas prices reach record highs and Americans tighten their household budgets….
Another hurdle facing these restaurants is their copycat nature. Though Bennigan’s modeled itself as an Irish pub, its menu had Black Angus steaks, Southwestern-style appetizers and tempura shrimp, items that would not be unfamiliar to patrons of, say, T.G.I. Friday’s or Ruby Tuesday.
“All these bar and grill concepts are very, very similar,” said Bob Goldin, executive vice president of Technomic, a restaurant industry consulting group. “They have the same kind of menu, décor, appeal,” which makes it more difficult to establish brand loyalty among customers…
The Ponderosa and Bonanza restaurants, which operate under another entity, Metromedia Steakhouses, were not covered in the bankruptcy…
“It’s not going to be easy to replace a tenant at this time, given the status of the industry,” Mr. Goldin, of Technomic, said. “It’s much trickier when you have to retrofit the whole place to fit in another kind of retailer.”
And Ms. Greene, of Avondale Partners, said that financing was also starting to dry up for ailing restaurant chains. “Banks have become less willing to lend to restaurants and franchisees,” she said. “The business fundamentals just do not support it right now.”
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I’m in the deflation camp now —
Even if oil backs off a bit for now, there are too many negatives going forward in terms of future value, i.e, we will see less access to money as a result of the compounding multi-trillion write-offs and subprime flu fallout. We will also see inflation-like pressure on wages and savings in term of yield, i.e, consolidation of banks will force yields lower and lower (as dividends are cut by every corporation) and as home prices drop, any current money invested will be displaced by the impacts of inflation. Furthermore, as banks consolidate and become less liquid, mortgage rates will rise, which will continue to push home prices down. Jobs will be difficult to find and unemployment will rise.
This type of environment will leave The Fed frozen, as they ignore inflation and stagflation, and as they hesitate (for months) in acting, they will fuel a deflation spiral. Obviously this decay will result in a weaker dollar, which will aid the “recovery” of higher oil prices, which will keep inflationary pressures rising, which IMHO, will result more in deflation than stagflation.
So much for late night theory… meaningless..
[pedantry]
The Times tells us…
There is only one “The Times” and that is the one published in London.
[/pedantry]
Btw, love the blog.
Doc… I’ll be your huckleberry ;)
I’ve been on the deflation side of the argument for a couple months.
The real question is ‘Which is larger… the inflationary effects of oil, or the deflationary effects of housing?’
The central banks, as much as they wish, cannot stop the deflationary sprial of housing prices. 30yr fixed rates are rising as the fed holds interest rates near an all time low.
The inflationary effects of oil are causing demand destruction and will eventually reach a plateau.
Unless we see wage inflation, further destruction of the dollar,
or a significant change in fiscial policy I don’t see how we avoid a period of overall deflation.
(I look toward Japan in the 80’s and not the US in the 30’s an example.)
bondsofsteel,
Thanks for being there for me in this time of confusion.
In terms of future value growth or decay, I’, thinking in terms of whole effects versus fractions and components, i.e, not just breaking out oil or mortgages but thinking in terms of net exposure.
In the balance of your question, between oil and housing, I think it’s obvious that as oil related costs increase and home values on average decline, the economy will slow and the aggregate result will be a loss of net value, which will occur as inflation increases.
In regard to wages, why would they go up? A great example of future reward is on wall street right now, i.e, not too many bonuses will be handed out and XMAS will look bleak for many. Furthermore, as debt matters widen, it seems obvious that the dollar should remain under pressure and weak, which fuels the symbiotic sustained value of oil.
Search requests are also showing interesting data on the US consumer (from TechCrunch):
“V-Enable, a voice-enabled mobile 411 system, conducted a study by taking a random sampling of 20,000 searches in major metropolitan areas from customers of several V-Enable partner carriers including Alltel and MetroPCS… it-down restaurants like Olive Garden, Applebee’s and Red Lobster, have dropped off the list, while recession-proof comfort food like Pizza Hut and Domino’s shoot to the top of the list. 380% more searches for Pizza Hut have been conducted during the period, and searches for Domino’s Pizza have increased 980%… U-Haul, a company that was never on any top 50 list, jumped to #23 in general search… Macy’s dropped from #17 to #49 in retail… Motel 6 has never showed up on a top 50 list, but they are now #37 in general search… “