Friday, December 11, 2009

Being part of the train wreck

A butterfly flaps its wings in China and McDonald’s ends up cutting its breakfast prices. Okay, there’s the profound factor in there of consumers waving new pink slips, but you get the idea. Despite considerable efforts to counter a stinking economy, restaurants are still being skunked by cascading forces beyond their control, unemployment being the main one.

Yesterday’s development was resounding confirmation. When the economy slipped in ‘07, breakfast afforded a rare spot of opportunity for fast-food restaurants. A majority of consumers still consumed their first bite of the day at home, posing a gigantic potential market. Not surprisingly, the big chains mobilized for an a.m. market surge, often starting with an upgrade of their coffee.

Few charged as forcefully as McDonald’s, already the sector’s breakfast king. Breakfast, beverages and snacks would be its growth areas, executives assured investors and franchisees. And it looked as if they were dead-on; those markets fueled a sales increase for the chain, at a time of significant decreases for most of the major fast-food slingers.

But rising unemployment started taking its toll. With almost one in five Americans “under-employed,” according to the experts, fewer consumers were venturing beyond their front doors in the morning. Breakfast traffic eroded, and those who still were heading to an office or shop floor were far more stingy with their pennies, a reflection of declining pay and often fewer incomes within a household.

McDonald’s responded by posting a new cut-rate breakfast menu in some of its markets. Yesterday, amid indications of further sales erosion, headquarters confirmed that the new a.m. bargain array would become an across-the-chain feature. Consumers trying to tighten their budgets will be enticed with a Dollar Menu of five items priced under $1, beginning next month, officials told the business media.

The brand’s closest rival, Burger King, had adopted dollar breakfast deals some time beforehand.

And if those two bellwethers are doing it, the pack is sure to follow.

But breakfast isn’t the only meal where lines have been thinned by unemployment. Yesterday I moderated a webinar that included representatives of several quick-service chains. One pointed out that it’s far tougher to sell lunches when fewer people are away from home for the midday meal. Those who do work are brownbagging it more often, and spending as little as they can when they do have someone else prepare their meal, he said, echoing the grim assessments of other experts.

And then there’s the phenomenon of furloughing, or cutting employees’ work schedules. Many employers now require those still on the payroll to skip several Fridays a month, with their compensation trimmed accordingly. Others are being forced to take additional weeks of vacation, though without compensation.

In short, the lunch market is being cinched far tighter, and those still in it have less money to spend.

Of course, it’s not as if the dinner market is booming. One of my webinar panelists works for a high-end concept that figures about 80% of its checks are charged back to employers on expense accounts. And it’s not as if travel or entertainment budgets have escaped the machete.

Most restaurant chains have tried to counter the curtailed spending at all times of day by flashing some astounding bargains. Even if that worked as well as they might hope, it leads to all kinds of problems, not the least of them being how the public can be weaned off deals when unemployment falls back to conventional levels.

In the meantime, those of us who are unemployed are grateful to have our Sausage McMuffin for a mere buck, or what we once might’ve given as a tip to the guy at the deli who prepared out usual breakfast.

No comments: