Economy will continue to stress restaurants, Fitch

by Staff
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CHICAGO — Fitch Ratings predicts the declining U.S. economy, growing pressure on consumer discretionary spending and higher-than-normal food costs will cause further negative effects for the restaurant industry in 2009.

"The strong likelihood of a global macroeconomic downturn, supplier consolidation and the inability to enter long-term fixed-price supply contracts will also add to operating challenges experienced in 2008," Fitch said. "Industry rationalization, due to a continued pull-back in new unit development and additional bankruptcy filings, particularly among highly leveraged chains, franchisees and smaller independents, will continue. The combination of a challenging operating environment and difficult credit conditions have raised borrowing costs and are expected to add additional weakness to the credit profile of the industry."

Fitch said the quick-service restaurant segment is better positioned to withstand current economic conditions as a result of a focus on value, lower priced menu items and continued consumer trade-down from full-service dining establishments. The outlook for the causal dining segment is negative.

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