Weathering Economic Cycles

For those who have done a lot of time in our industry, economic downturns are as inevitable as the sun rising every morning. While these downturns may seem catastrophic at the time, rest assured they are survivable. Note that downturns include not just recessions, but also one-off black swan events such as Black Tuesday in 1987, the bursting of the dot-com bubble in the late 1990s, and of course 9/11.

It has been now been more than 10 years since the Great Recession hit the U.S. economy, one of the longest periods between downturns in modern U.S. history. One thing we know for sure, however, is that another downturn is inevitable. Yet the catering industry has proven to be highly resilient over the years, recovering surprisingly quickly from even severe economic shocks.

I am sometimes asked how a caterer can best be structured defensively to survive an economic downturn. The answer is, it depends!

Some of the most profitable caterers I have ever worked with are single line caterers: an off-premise caterer specializing in corporate delivery, or an on-premise caterer that only does weddings. But in a downturn, a single line caterer can be at risk if their particular product is considered a luxury rather than a necessity. This can put the provider at risk, at least on a temporary basis.

Event catering traditionally plateaus or even declines during every economic contraction but tends to recover very quickly once the economy begins to grow again. This quick recovery trend has proved out after every downturn since the early 1980s, which has led to a near tripling of the size of the industry in constant dollars since 1982.

Corporate delivery and retail catering, on the other hand, are often considered commodity items, and are less likely to be dispensed with even in the jaws of a downturn. After all, employees and clients still need to eat, even during bad economic times.

The various areas of the full-service catering trade often trend differently in a downturn, depending on a number of factors. Let’s take a look.

WEDDINGS

The wedding market is showing signs of continued substantial growth in 2019, based on advance bookings reported in many areas of the country. The factors feeding this growth include same sex weddings being legalized in some states, a recovery in the destination wedding market, and continuing favorable demographic trends including greater life longevity and rising home values that recovered since the trough of the most recent recession.

As the largest single sector served by caterers, a healthy wedding market is a strong indicator of even better times Catering through economic cycles in the future. The beneficiaries of this favorable trend include all types of caterers and other entities that provide catering and banquet services, as well as the suppliers and manufacturers that serve them.

OTHER SOCIAL EVENTS

Despite the issues surrounding immigration, the U.S. continues to attract people from around the world. The various cultures and ethnicities making up America’s melting pot focus on different types of celebratory and life cycle events, most of which involve food (and therefore catering). For example, the rapidly growing U.S. Hispanic-heritage population has brought the custom of the quinceañera to the forefront in high-density Hispanic populations. Many families will spend more on a quinceañera than on a wedding, offering a great opportunity for caterers to capture an entire new revenue stream. With the growing prosperity and influence of the upper middle-class Hispanic community in the U.S., this represents a great opportunity for caterers that barely existed two decades ago.

CORPORATE ENTERTAINING

The most direct influence on corporate entertaining budgets is simple profitability. And as of 2018, profitability among public companies—the largest consumers of catering services—was at an all-time high. Last year’s tax law changes provided even more free cash for corporations.

Of the various types of corporate entertaining, employee morale events may be at greatest risk during a downturn, even though this seems counterintuitive during a tight labor market. Conversely, marketing driven events may be seen to be even more important during a downturn than during an expansion!

The overall conclusion is while any individual caterer may be at greater or lesser risk during an economic downturn, the industry as a whole is not. A diverse and well-balanced catering company may be the very best business model to survive, and even turn a nice profit, during the next inevitable downturn.

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