NEW YORK — As the number of unemployed consumers climbs, Wall Street analysts say restaurant sales, profits and stock prices are likely to drop, leading to even more layoffs in the restaurant industry.
Restaurants — like all retail companies — depend on consumers’ willingness to open their wallets. Consumers with less cash often choose to eat at home rather than at a restaurant where drinks, tips and taxes all feed the tab.
The Labor Department last week reported that employers cut 533,000 jobs in November, the most in 34 years. With the number of unemployed consumers climbing, analysts are beginning to wonder whether the worst is yet to come for restaurants.
In a note to investors Friday, Citi analyst Gregory R. Badishkanian said that even at McDonald’s Corp., which has managed to keep sales rising due to its low prices, higher unemployment could cause sales to slide.
“If employment trends were to worsen,” he said, “this could pose a meaningful risk to McDonald’s business.”
The analyst noted that economists at Citi have estimated the U.S. unemployment rate could rise to 9 percent over the next six to 12 months.
Restaurants are already struggling with higher costs for ingredients as well as declining sales. Operating costs also surged due to hikes in the minimum wage at the federal level and in some states.
“It obviously is the most challenging period for the restaurant industry easily since the 1980s,” said Hudson Riehle, the National Restaurant Association’s senior vice president of research.
