Going in Reverse

Sharon Bernstein's article highlights the plight of many who have held on. The duration of this downturn has drained everyone's resources and now in far too many cases the well has dried out. Compounding the drain in resources, banks have undercut lines of credit which are always the funding of last resort. Both consumers and business simply do not have the credit to keep spending.

Nearly all the closings were among independently owned restaurants: small, family businesses that just couldn't hold on as customers held back. Earlier in the year restaurants reported modest increases in business, but the jumps in sales were too little too late for many.

Bonnie Riggs, NPD Group's restaurant industry analyst, said most companies are holding off opening new locations until the economy improves. "Restaurant owners stop building restaurants and close the underperforming stores so the can make the bottom line look better," she said.



Restaurants are particularly vulnerable to economic cycles because their product is usually discretionary. When people cut back on expenses, meals outside the home often go first. Add to that the cutbacks businesses have made in their travel and entertainment budgets, and the drop in restaurant sales becomes severe.