Chain Restaurant Recession.

So Bennigans just went out of business. Evidently the jumbo onion rings were being bought with suburban home equity loans. WordPress is being odd about embedded video, so you’ll have to click through to see a clip from that awesome episode of South Park with Butters going to Bennigans.

I bring it up only because earlier this year there was some debate about whether or not the cheap fast-food chains, especially with the dollar items they offer nowadays, were going to be growing strong during the recession, while middle-class sit-down chain restaurants, and middle-class luxuries in general (let’s say Starbucks), were going to be in trouble. In the future, we’ll all eat a dollar hamburger at McDonald’s cause it’s the cheapest fats and meats we can get while cutting our Starbucks and Bennigans out of the budget – a $1 hamburger can go a long way.

The other opinion was that rising inflation and energy costs (those dollar hamburgers are made out of a cup of crude oil for all intents) were going to kill the dollar menu, or make it so sickly that it would be unedible. The price of meat is already below where it should be through government subsidies and cheap oil, and a shock to energy prices and food prices and all commodity prices will send it rushing upwards (Michael Pollan wrote something specific to this effect, though I can’t find it). Also that middle-class luxury items wouldn’t get hit that bad with the credit crunch, or at least not as bad as McDonald’s. In the future, the dollar hamburger will be $3 and taste worse, while Starbucks is still on every corner outside the new housing developments. Even if Starbucks does bad, it is in the same boat as McDonald’s.

I had meant at the time to monitor this with stock prices and different portfolios for each consumption bundle: how is the restaurant economy is doing vis-a-vie the recession? Which is winning and which is losing? Let’s take a peek at how the year has treated this mini-debate. Blue line McDonald’s, Red line Starbucks:

It appears the meat companies have found ways to keep costs down with all the energy and inflation worries.

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One Response to Chain Restaurant Recession.

  1. EW says:

    I suspect, but can’t prove, that chain restaurants are already cutting corners: making portions smaller, using lesser-quality meat, etc.

    Also interesting, drive-through Starbucks are significantly more profitable than walk-in Starbucks. Perhaps fewer people are driving through Starbucks in the recession.

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