You cannot turn on a TV or flip through a newspaper today without hearing about the financial crisis in the European Union (EU), which might “lead to the very rapid global spread of recession.” This is especially concerning for U.S. consumers and companies considering, “The European Union and United States economies are the two biggest in the world and their financial institutions are deeply intertwined.” This dreadful news “could damage consumer and business confidence.” As a result, consumers will begin spending less. For hospitality companies this is extremely problematic. Eating out and traveling are leisure activities, and if consumers are cutting their spending, funding in this area is the first to be cut. Revenue at McDonalds and Marriot will decrease and consequently so will those company’s bottom lines. Similarly, if firms do not have confidence that revenue will rise they are not going to have an incentive to invest and expand their business.
In addition, equity financing (stocks) could become a problem for both consumers and companies. If stock prices begin to fall, which is very possible due to a lack of confidence, companies have less money to invest with and stockholders begin losing money- none of this is indicative of a recovery. As Ryan Sweet, a senior economist at Moody’s Analytics, puts it,” If stock prices start falling, consumers are likely to cut back on spending, which would be sufficient to grind the recovery to a halt.” Simply put, the peril of the financial crisis in the EU could greatly affect hospitality companies, who rely heavily on consumer leisure spending.
However, one major industry player is exemplifying how to increase profits even when the pressure of another recession looms in the near future. This company is Wendy’s Inc. Aside form concern over then financial stability of the EU, hospitality companies, especially restaurants, have to contend with an increase in commodity costs. Wendy’s has decided to solve this dilemma by keeping prices relatively low. Although in the short term this might hurt their bottom line, they are hoping to offset that by focusing on long-term growth. Wendy’s hopes to achieve this by “investing in breakfast and other new menu items, like its own Redhead Roasters coffee blend, and expanding internationally, such as opening its first of four planned Canadian concept shops last month.” Mr. Brolick, President and CEO of Wendy’s, said, “Wendy's also intends to focus more attention on the dining-room experience, saying there is growth opportunity in that space”, particularly with older customers who tend to eat on location more often. Wendy’s has decided to price low in an attempt to attract more customers and keep them coming. In addition, they believe investing in new menu items will also attract more customers and keep Wendy’s competitive. So far, this has proved to be successful, seeing as revenue rose 1.8% to $611.4 million even though Wendy’s operating margin widened to 5.3% from 3.4% (due mostly to a rise in commodity prices).
The economic downturns have been one of the most influential factors on the business operation and hotels as well as any firm in the hospitality industry. All are trying to search for new tactics in order to keep their revenue constant and avoid failure being a luxury rather than a necessity. Wendy's price adjustment is one solution at this point in the economy and that can be seen by the rise in revenue. Every company is trying a different approach, some adjusting prices others by differentiation.
ReplyDelete-Lila Al-Refai
It is amazing that even in a recession, when companies are so focused on only making money, Wendy's is willing to put their neck on the line to attempt to expand on their product's available. By creating the coffee blend, they are not only helping in breaking into possible new markets, they are individualizing their company from most others since very few restaurants offer a coffee blend individual to their chain.
ReplyDelete-Domenick Cocchiara