Creative Destruction in the Restaurant Biz

I’m not sure how to react to the article in the New York Times today about a pair of casual dining chains closing up shop:

Several national restaurant chains were shuttered on Tuesday, possibly offering an early taste of what’s in store this year for businesses that depend on free-spending consumers whose budgets are now being squeezed.

The parent company of Bennigan’s, an Irish-themed bar and grill with about 200 sites across the country, filed for bankruptcy, a move that will put hundreds of employees out of work and leave many landlords with empty retail space during a painful time in the real estate market.

A sister brand, Steak & Ale, will also close. Franchise units of Bennigan’s will remain open for now, a spokeswoman, Leah Templeton, wrote in an e-mail message.

The restaurants are the latest casualties in the so-called casual dining sector, considered a cut above fast food. Soaring food costs and a surfeit of locations have hurt the companies’ bottom lines just as Americans are choosing to take more meals at home.

They may not perceive it this way but practically all businesses survive in extremely narrow economic niches and to identify the niche you look at the critical success factors for the business. Casual dining makes sense when gas prices and labor costs are low. Fast food is nearly completely dependent on being able to pay low wages. For fast food the original source of unskilled labor was teenage baby boomers. If you don’t believe me, check the period of growth of the industry.

As that stream of baby boomers slowed, their place was taken by immigrant workers.

I don’t believe I’ve ever eaten in either of the two closed chains but I’ve eaten in others of the type. My experience was that they sold very average food in very large quantities in very average surroundings at prices that were just a hair above fast food levels. Apparently, the sharp, fast increase in gas prices was just too much for them. I’m not sure I can muster much sympathy over the passing of these chains. They’ve mostly supplanted mom-and-pop non-franchise diners, coffee shops, and snack shops that were much more varied and interesting than the stamped-out-of-a-machine franchises.

I doubt they’ll be the last casualties of this most recent gas price increase. I think we’ll see increased pain in the already troubled auto and airlines industries and even some changes related to changing economic of two-salary families. Interesting times.

Hat tip: memeorandum

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