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Wednesday, December 31, 2008

Outlook for 2009

Back in late April, I mentioned the shrinking size of the loaves of bread at our local bakery in the Smaller Portions Or Higher Prices? article. Today, we noticed the loaves have returned to their normal size. The price per loaf never changed at all during the entire period. We never bought more loaves during the eight month stretch. Actually, I think we bought less bread this year.

We had our annual HFTP Christmas Party at the Capital Hilton. I was running late and grabbed a cab for a short ride. It cost $7 to travel less than one mile. The drop fee was raised to offset higher gas prices. Nobody lowered the meter prices when oil dropped back to earth. Should you tip less to offset the obsolete pricing policy? Since I was in the holiday spirit, I tipped as usual.

With restaurant traffic down for the year, many neighborhoods have seen price wars. Even the top local restaurants here in Fairfax County have post card offers for free desserts. With lower gas prices, most families will have an extra $30 to $70 dollars each week to spend on discretionary purchases. Do you woo them with bigger portions, lower prices, both, or do nothing at all? If you do nothing for the next quarter, I would expect your cost of sales and other direct operating expenses to drop (as a percent of volume).

Many of you will get a true read out on the economic future as the holiday season ends. Expect oil prices to find an equilibrium price higher than current levels. Grain prices will continue to track oil since most gasoline now has a 10% ethanol blend. Interest rates are very low allowing many businesses and consumers a chance to refinance. Credit remains very tight. Bottled water sales are in decline and tap water is becoming a popular restaurant beverage choice.

Rather than using 2007 or 2008 as your compass, try to put together a logical forecast for your region. If you operate near a major banking center, the layoffs could completely change your business model. Anyone in the Mid-West may see an increase in economic activity as stimulus dollars reach the automobile manufacturing companies. State and local governments have less revenue. If you are located in a capitol metro area, you can expect less traffic.

Americans are consuming more beer. You may want to slow down your wine list expansion. Turn a portion of your wine inventory into cash by selling slow movers by the glass. Don't be afraid to accept a higher cost of sales on these bottles. Your shelves are filled with frozen cash.

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