NEW YORK Fitch Ratings, a credit and debt rating firm, expects the restaurant industry’s fortunes to improve late next year, following what it calls the bottoming out of weak industry sales trends currently taking place.
While operators are expected to continue tightly controlling their costs and capital expenditures, and commodity prices should remain relatively stable in 2010, positive sales trends — which have eluded most restaurants this year — are anticipated in the second half of 2010 as the macro economy picks up, Fitch said in a report released this week.
“Modest [restaurant industry] improvement could occur in the later half of 2010 as the broader economy continues to recover and consumers regain confidence,” the Fitch report said. “Nevertheless, Fitch does not expect a rapid upturn in [same-store sales] growth due to the potential ‘longer-tail’ nature of the economic recovery.”
In its economic outlook Fitch expects:
• Unemployment to peak in 2010, averaging 10.2 percent for the year, and then falling modestly in 2011.
• Personal consumption to turn mildly positive, rising 0.3 percent in 2010, after declining by an estimated 1.1 percent in 2009.
Fitch said that the negative sales trends now being experienced by even the recession-resistant quick-service brands could signal the bottom of the industry’s yearlong sales slump.
“Fitch attributes declining traffic trends for the [quick-service] segment to rising unemployment and increased price competition, given the high level of discounting and promotions in casual dining,” the report said, “but believes broad-based weakening among [quick service] sales performance could signal a bottoming for the industry.”
Commodity costs in 2010 are expected to increase slightly, which could hurt restaurant operations already struggling to maintain margins on lower sales volumes, Fitch noted. Wage inflation, however, is not expected to be an issue next year, as the final phase of the federal minimum wage increase was completed in 2009. In addition, high unemployment rates should alleviate any wage pressure, the report noted.
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