Restaurants operate on tight margins - approximately three percent before taxes on average, which is lower than many other industries. Low profit margins are partly attributable to productivity levels, which have been flat for some time, and are the lowest among the retail industries.
Low margins and productivity are being exacerbated by a range of legislative and regulatory issues that include restaurant depreciation, credit card regulation, tax reform , social security reform,tip credits, wage mandates and health care.
Restaurants function in lockstep with economic cycles; in periods of decline, consumers reign in discretionary spending, including on restaurant meals.
The current environment is especially difficult, with food costs rising at the highest rates in several years.
The combination of dampened demand and increasing costs has led to a significantly more challenging environment in 2008 compared to the past four years.
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Posted by: Matthew Kimmel | October 24, 2008 at 04:34 PM