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Restaurants’ recovery portrayed as a white-knuckle ride

The fortunes of the restaurant industry and the economy as a whole have improved since the dog days of 2009, but it's been a roller coaster ride to get there, attendees learned at this week's Restaurant Leadership Conference.

"It seems as though just as we get some good [economic] news something shakes us again, whether natural disasters [or] gas prices," said Todd S. Jones, managing director at GE Capital, Franchise Finance. "Up and down and up and down."

At his annual GE State of the Industry address at the RLC, Jones said industry sales are currently growing, but uncertainty continues. In other words, the roller coaster ride isn't over yet. But the good news outweighs the bad:

The good news:

  • "We are in the midst of an energy revolution," explained Jones. "Think about where we were with technology in the early '90s, that's where we are now with energy. Wind, solar, hydropower, shale. That's an opportunity to create jobs and a catalyst for growth."
  • The United States is better off than other major economies. The domestic economy grew at 2 to 3 percent over the past year, while Europe and Japan grew by only 1 percent.
  • Inflation is staying under control.
  • Home prices are rising. And the housing industry as a whole is seeing a rebound. As a result of that personal wealth has increased. As Jones explained, after the downturn, personal wealth dropped by $15 trillion nationally. Consumers have recovered $13.6 trillion. "When we feel better about our fundamental asset, we feel better about spending," said Jones.
  • Consumer spending isn't bad. Compared with 2006, pre-recession consumer spending is at a higher rate of GDP: 70.2 percent compared to 70.7 percent.
  • Financing is strong. In 2012 $465 billion in capital flowed into the restaurant sector. Through the first quarter of 2013, the tally is already $211 billion.
  • There are fewer defaults. Default rates are normalizing from 2009 and 2010 in the darkest days of the recession. Currently, there is only about a 1.5 to 2 percent default rate. "A good balance of risk and growth," said Jones.
  • Mergers and acquisitions are strong. The overall dollar amount of all restaurant mergers and acquisitions dropped last year, but the number of transactions increased. Fewer big-dollar deals were done, but there were a lot more smaller deals.

The bad news:

  • Washington. The greatest uncertainty in the economy all resonates from the nation's capital, said Jones. From the sequestration and the uncertainty over its ultimate impact, to the Affordable Care Act and its uncertain impact on the industry: everyone is on edge.
  • Technology. The industry isn't adopting it fast enough. Jones is concerned that the industry is letting opportunity pass it by. He pointed to the fact that restaurants spend 80 percent of their marketing dollars on TV and only 3 percent on digital marketing. At the same time, he stressed, a revolution is happening not just online—with more people turning to digital outlets for messages from brands—but on TV, with more people watching online and on DVRs, where they fast forward right through commercials.
  • Commodity prices. A great swath of the Corn Belt is still suffering under drought conditions. The ramifications of that ripple throughout the commodity markets. Prices are going up and they are going to continue to go up.

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