Lane Cardwell

The Coral Reef of American Business

A report came out recently on the state of the oceans coral reefs. It was a sobering study which stated that one third of the world's reef-building corals are in jeopardy. Due to rising water temperatures and polluted waters, many reefs, which are the support system for 25% of the sea life in the world, may not survive till the end of the century.

Reading this, it occurred to me that the restaurant industry is a lot like a coral reef. We are more than just something that is there for the enjoyment of the public. We are an integral part of the economic viability of this country. A weakened restaurant industry is like a weakened reef. The implications far exceed the boundaries of the coral structures.

We are a big industry. The NRA (the food people, not the gun people) estimates that there are almost 1 million restaurants in the U.S. Almost 70% of these are run by independent operators. Full service restaurants (family, casual dining and fine dining) are the largest part of the industry with 2008 sales estimated to be $190 billion. Quick service restaurants account for about $160 billion. The multiplier effect of our sales on other industries is enormous. Our food purchases, operating supplies, advertising, construction, repairs, etc. feed a lot of families dependent on our existence.

We are a big employer. Citing NRA statistics again, we employ 13 million people, equal to 9% of the U.S. workforce. This makes us the second largest employer, trailing only the government (which has a built-in advantage). Nearly half of all adults have worked in restaurants at some point in their lives, and we are the first job for almost one third of adults. Upset the fragile ecology that the restaurant industry is built on, and the first people to feel the effects are the ones who least can afford to be affected.

We are a big part of America's kitchen. There are only two ways that people can eat a meal. They can eat a meal prepared at home, or they can eat a meal prepared outside of the home. For the past 40 years people have gradually shifted their food spending toward our industry. This shift has slowed, or even reversed, in the past few years. The sales growth percentage in food-at-home (grocery) increased at a higher level than for food-away-from-home (restaurant) last year for the first time in five years. It is only the fourth time in fifteen years that this has occurred. Improvements in the grocery industry's ready-to-eat meals programs, combined with other cost pressures on our customers, have resulted in a renewed fight between these two industries for the meal dollar.

As the restaurant industry deals with 30-year highs in commodity inflation (our version of rising water temperature), and the impacts of increasingly difficult legislation and regulation (our pollution), we see the industry's own "reef structures" feeling the effects. We are not in danger of extinction, but the viability of some our financially weaker chains and independents, like the coral reefs, could be classified as either "vulnerable", "endangered" or "critically endangered".

People take the reefs for granted, like they take restaurants for granted. Hopefully, we will still be able to offer the "catch of the day" for many years in the future.
  

Posted by Lane Cardwell on July 21, 2008 | Comments (4)