Restaurant Apocalypse

The huge cash infusion of the Covid years has mostly played itself out. The stimulus did not produce higher output or greater wealth. It just increased prices — particularly real estate prices.

Thursday, June 06, 2024

Bill Bonner, writing today from Dublin, Ireland

First a happy note from Fox: 

Many elections are marked by reports of dead people voting, but a dead person being elected is far less common. Yet that’s exactly what happened on Tuesday when Rep. Donald Payne Jr. won a primary in New Jersey’s 10th congressional district. 

The beloved congressman and member of the Congressional Black Caucus suffered a fatal heart attack on April 24th, according to the NY Post. The filing deadline for primary campaigns in New Jersey was in March. Congressman Payne Jr. was the only candidate to register. 

We wish the candidate well in the general election. He would certainly get our vote. He would be the least corruptible member of Congress — by far. The most reliable and steadfast, too... unwilling to go along with the latest scams and boondoggles. Alas, he would be in a very small minority. Most members of Congress are still above ground... and a threat to us all. 

But now, back to our regularly scheduled programming: 

Why can’t we win a war... even with a 30-to-1 advantage (measured in GDP)? 

If we’re so rich, why can’t we pay our own way... rather than passing the bill for current programs onto future generations? 

Why does it seem to average citizens that things are getting worse... while politicians insist that we are better off than ever? 

On this last point... Business Insider: 

A survey conducted by financial services firm Primerica found that 67% of middle-class respondents said their income was falling behind the cost of living over the first quarter. Among those people, 74% said they were pulling back on discretionary purchases, such as eating out. 

More broadly, it has been widely reported that millennials will be the first generation in American history to earn less than their parents. 

What gives? 

Donald Trump claimed that he presided over the “greatest economy ever.” Now, Joe Biden claims the same thing for himself.  Why then did they need to borrow so much money?  In 2016, the US had $20 trillion in debt. Together, over the next eight years, they added $15 trillion — more than any dynamic duo in the history of the country.

But even with these record deficits behind us... and estimated deficits of $1.5-$2 trillion per year going forward, US GDP growth rates are slumpy and consumer price increases make it hard for people to keep up. As a result, Americans are forced to give up one of their simple pleasures — eating out. 

In this month’s edition of his marvelous Gloom, Boom and Doom Report, our old friend Mark Faber takes a look at the status of the chain restaurant business. In a word: bad. 

The huge cash infusion of the Covid years has mostly played itself out. The stimulus did not produce higher output or greater wealth. It just increased prices — particularly real estate prices. 

Shelter is the biggest single item in most family budgets.  So, this leaves families a little short of cash.  The ‘casual dining’ sector seems to be feeling the pain most sharply.  

Labor and food bills have increased dramatically for the restaurants, especially in California, where fast-food workers get a minimum wage of $20 per hour. Restaurants have been forced to raise prices. Prices at McDonalds, for example, have more than doubled since 2014. 

Faber reports that about two in five restaurants didn’t make a profit last year. Red Lobster is said to be considering bankruptcy. TGIF is in ‘distress.’ Appleby’s is closing restaurants. Boston Market is going bankrupt. Cracker Barrel reports “weaker than expected traffic.” He continues, listing a few notable bankruptcies: 
 

The New York–area Sticky Fingers Joint (in part due to “unprecedented” chicken and potato price increases), Tijuana Flats (a casual Mexican restaurant chain located in Florida), and Rubio’s Coastal Grill (a chain of 150 restaurants throughout Arizona, Nevada, and California). According to Bloomberg: Prices are rising more slowly at the supermarket, meaning families can still stretch a paycheck further buying staples rather than ordering prepared foods... 

Across the board, you have higher labor and food input costs and hesitant consumers,” said Mark Levin, a co-founder of advisory firm Asterisk Capital. “Some people will trade down from mid-priced to lower-priced restaurants, but a lot of lower-priced customers will just stay at home. 

A ‘Restaurant Apocalypse’ is said to be sweeping across America, according to Michael Snyder. Why? Because “consumers simply have a lot less discretionary income now.” 

Less discretionary income? What happened to that $15 trillion of new credit that the feds pumped into the market? Distributed evenly, that should have put another $150,000 per family into consumer pockets. Where is it? 

Tomorrow, we return to French economist Emmanuel Todd and his idea that much of US wealth is ‘fictitious.’ Whether it is the prices of stocks or bonds…or property…or the wealth of Wall Street or Main Street’s US GDP — much of it is a fantasy. 

More to come...  

Regards, 

Bill Bonner