I grew up thinking of “home-cooked meals” with a shudder. My mother once produced a Thanksgiving turkey so inedible our cats wouldn’t touch it; my father fell victim to every food fad from the 1960s Tiger’s Milk powder to the recipes of Euell Gibbons. One of my favorite things about modern life is that one no longer has to be rich or a competent cook to eat well. So I found this article frankly terrifying — “Thanks to Wall St., There May Be Too Many Restaurants”:
… After a prolonged stretch of explosive growth, fueled by interest from Wall Street, experts say there are now too many fast-food, casual and other chain restaurants.
Since the early 2000s, banks, private equity firms and other financial institutions have poured billions into the restaurant industry as they sought out more tangible enterprises than the dot-com start-ups that were going belly-up. There are now more than 620,000 eating and drinking places in the United States, according to the Bureau of Labor Statistics, and the number of restaurants is growing at about twice the rate of the population…
Customers continue to spend a large share of their food budget in restaurants, but they’re spreading the money across a larger number of establishments, so profits are split into smaller individual pieces. Yet the industry — particularly chain restaurants — continues to expand, a strategy that both masks the problem and makes it likely that more places will falter.
Sales at individual chain restaurants, compared with a year earlier, began dropping in early 2016, analysts reported. A majority of restaurants reported sales growth in just four of the last 22 monthly surveys from the National Restaurant Association. Before that, most restaurants had reported growth for 20 consecutive months, from March 2014 through October 2015, the survey found.
As Americans work longer hours and confront an ever-growing array of food options, they are spending a growing share of their food budget — about 44 cents per dollar — on restaurants, according to food economists at the United States Department of Agriculture Economic Research Service.
But while consumer demand contributed to the restaurant boom, it was changes on Wall Street that really fueled the explosion. Chains like Del Taco, Papa Murphy’s and others began attracting money from private equity firms, and banks like Wells Fargo and Bank of America saw lending opportunities in the restaurant industry.
Those developments complemented each other well. New fast-food investors wanted to rely less on owning restaurants, and offloaded many company locations to eager buyers who came with bags of cheap money from the banks. The investors could then count on a steady stream of franchise fees and royalty payments — buffers against overall sales declines if, say, the market ever became oversaturated. And they didn’t have to worry about actually operating the restaurants.
Franchisees pay for the right to operate a McDonald’s or a Subway, following rules that dictate everything from what type of taco to sell to where to buy iceberg lettuce. They take on the risks and costs of running the restaurants, in exchange for the marketing muscle and name recognition these big companies provide. While every Dunkin’ Donuts or Taco Bell may look the same, dozens and sometimes hundreds of independent owners can operate most of the restaurants within a single brand…
he shuttering of restaurants could have a major impact on the labor market. Since 2010, restaurants have accounted for one out of every seven new jobs, and many restaurateurs complain that it has become increasingly difficult to hire and retain workers. In Muscogee County, Ga., a former textile center, the Labor Department reported an overall decline in employment of 2,000 jobs since 2001 — but a gain of 2,700 restaurant jobs.
Those positions could be in jeopardy if sales continue to fall and force more restaurants to close…
So, having broken the small local restaurants and dinners by overbuilding franchises, Wall Street will now break the individual franchisees by demanding unrealistic quarter-upon-quarter profits. And when those franchises go under, they’ll kill one of the last low-skill, can’t-be-moved-overseas job sources. Another “win” for the banking community!