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Economic Factors of Restaurant Businesses

Updated March 23, 2017

The study of balancing scarce resources with unbridled desires is easily applied to the restaurant business. Restaurants are constantly devising ways to attract fickle customers to eat at their establishment instead of going across the street. Marketing as well as economic conditions affect a restaurant's chances of success.

Seasonality

A restaurant with a dessert menu featuring gelato will notice a large decline in sales during the winter as people trade ice cream for hot chocolate. Many restaurants adapt to the seasons by changing their menu to reflect fresh, in-season ingredients. Businesses that feature their brand around one seasonal product, such as a smoothie, cannot escape the impact of seasonality: They must save their higher revenues in the summer to get through the colder winter sales.

Labor Conditions

Many people can recall how easy it was to get a job as a server during robust economic times: They would show up, fill out an application and get hired on the spot. However, in times of an economic recession, many restaurants take advantage of the glut of labour by selecting a high-calibre staff. College grads, laid off from their specialised positions, become bartenders or servers to wait out the tough economy. Many restaurants begin to add prerequisites to job posting, such as "must have at least two years of service." Economic recessions also lower the turnover rate, which is much higher in the restaurant industry than in other professions.

Competition

Few industries are more competitive than the restaurant business. Sharon Fullen, author of "Opening a Restaurant or Other Food Business Starter Kit," explains that assessing competition is critical to the success of the operation. Even businesses that devise a unique idea, such as an organic make-your-own salad cafe, will notice their idea copied by a competitor right across the street. The original business will have fewer sales. To compete, they must lower the price of yoghurt, issue coupons and increase their advertising. For the consumer, competition is good: It lowers prices and increases variety and innovation. For the restaurant businesses, competition is annoying: It lowers revenue, makes it harder to stay in business and requires creativity to gain customers.

Quality vs Cost

Restaurants make the decision of cost vs quantity every day. They must assess how the quality of ingredients affects sales and determine if the trade off is worth upgrading or downgrading ingredients. For example, the majority of restaurant patrons would prefer the taste of truffle oil over olive oil in a cream of mushroom soup. If the kitchen would substitute this ingredient, then sales would skyrocket. However, the cost of truffle oil far exceeds the price tag of olive oil. The kitchen would have to sell many more bowls to cover this ingredient, or the price of a bowl of soup would have to rise.

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About the Author

Since 2008 Catherine Capozzi has been writing business, finance and economics-related articles from her home in the sunny state of Arizona. She is pursuing a Bachelor of Science in economics from the W.P. Carey School of Business at Arizona State University, which has given her a love of spreadsheets and corporate life.