The hospitality industry is one made up of mostly food services and hotel accommodations. Within each of these two categories falls hundreds of companies that stretch from Hilton, Marriott and Best Western for the hotel category, to McDonald's, Burger King and Kentucky Fried Chicken for the food services. Each of these encompass their own set of demand groups and have their own set of supply structures in place.
In the case of food services, we have actually seen a rise in some instances due to the bad economy. However, for the most part, this industry is hurting. For example, over the past two years, McDonald's has gone from having it's stock shares at the low $50 range, to being priced at $88.29 as of September 18th. But in the case of the general market as a whole, it has been in a decline since 2008. This shows that although the businesses that are based on cheap and easy to get meals are doing well, the industry as a whole, which include the fine dinning and more expensive restaurants, is hurting due to the current economic stances.
When it comes to hotels, it is almost incredible that the industry is still around. With high travel rates, extensive regulation over employees and policies, and an increasing need to rely on tight profit margins, the industry is not posting any major profits as a whole. The demand recently has been for cheaper and easier to access hotels. This means that people are looking to find places that will cost less to stay at due to the cost of getting to the places. The ability to supply cheap hotels however, is becoming increasingly hard to come by due to the rise in use of internet groups that scout out for cheap deals and bundle them together.
As a whole, the percentage spread for the industry as a whole is significantly more then it has during past economic hard ships. In the 1991-1992 recession, the spread between supply growth and demand decrease was at 0.9%. During the 2001-2002 recession, the spread was 3.5%. Right now the ratio is at 5.5%. This means that there is a much higher supply of goods in the market then there is for a demand, thus causing the markets to push lower since the industry is so easily accessible.
http://www.hospitalityworldnetwork.com/trends-and-stats/supply-and-demand-gap-widens-greatly-during-recession
http://finance.yahoo.com/q?s=MCD&ql=0
Since businesses' performance can be interpreted by the supply and demand curves of economics you were able to convey this clearly, by providing examples such as McDonald s which wasn’t affected by lower demand such as other food service providers as it offered lower prices satisfying consumers. I liked how you related the supply and demand curve to the recent economy recession and provided evidence for each point stated such as the percentage spread for recessions since 1991 .Furthermore, what you wrote in the end gave a forecast of the equilibrium shift where prices would have to be pushed down since supply for the goods and services in the industry is much more than demand.
ReplyDeleteLila Al-Refai