October 15, 2008 / 10:00 PM / 9 years ago

U.S. restaurant business toughest in 17 years: NRA

CHICAGO (Reuters) - U.S. restaurants are enduring their toughest time in 17 years as tight credit and falling home prices compel consumers to eat out less or spend less when they do, a National Restaurant Association economist said on Wednesday.

“This is the most challenging environment for restaurant operators since 1991,” Hudson Riehle, NRA chief economist, told Reuters. “Depending on how consumer spending proceeds in the fourth quarter, it could be the most challenging environment since the early 1980s.”

Using retail sales data released early on Wednesday, Hudson put restaurant sales growth at about 4.2 percent for the first nine months of 2008. But, when higher wholesale food costs are taken out, he said the industry’s growth is flat.

“Restaurant spending in 2008 is definitely weaker than it was in 2001, the last recessionary period. The previous weakest year was 1991 for the industry, when real sales growth actually declined by .2 percent,” he said.

So far in 2008, consumers are still spending about half of their food budget at restaurants, however it appears that spending has been at lower-cost restaurants.

“The lower the average check of the operation, the slightly more optimistic those operators are,” said Riehle.

“Quick service restaurants, which have a lower average check, in general those operators tend to be somewhat more optimistic than higher average check operations,” he said.

Tight credit and falling home prices have affected consumer spending as well.

“When consumers were utilizing the rapidly growing equity in their residences that translated into higher spending and the restaurant industry was definitely a beneficiary,” he said. “That is definitely a dramatically changed situation.”

In a recent NRA survey, NRA members named the economy as their top challenge, compared with a year ago when it was recruiting and retaining staff.

“The landscape has changed dramatically over the past year,” said Riehle.

Reporting by Bob Burgdorfer; editing by Gunna Dickson

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