Wednesday, June 7, 2017

Did Chain Restaurants Just Declare Capitalism Dead?

The language couldn’t be more moralistic: “Millennials are killing chains like Buffalo Wild Wings and Applebee’s,” screamed the headline. As if the murder image weren’t clear enough, the tagline continues: “Casual dining is in danger — and millennials are to blame.” I wish I was kidding; had my students written this as fiction, I’d have returned it marked too high-handed to be plausible. But this screen-capture proves my point:

This unsubtle attempt to shift blame for flagging sales off chains that haven’t handled changing times, onto the young customer base they’ve long taken for granted, is stacked with assumptions. By saying customers are “killing chains,” the article makes customers into murderers, and chains into victims. By unambiguously assigning “blame,” it makes the demand side of economics responsible for chains’ fortunes, rather than chains themselves.

But most important, it implies that Millennials, possibly the most poorly defined generational cohort since popular media began naming generations, have the same choices their parents had about spending money. This is, of course, ridiculous to anybody who follows economics. Starting wages are down, housing costs—especially in major cities—are way up, and entry-level jobs frequently require graduate degrees just for consideration. Youth have no remaining money for hot wings out.

Though writer Kate Taylor acknowledges, in her article, that blaming Millennials has become “a trend to the point of cliché,” she ultimately maintains the pattern, squarely hanging responsibility for chains’ fortunes on young, supposedly childless customers. Throughout her diatribe, Taylor implies customers have a moral obligation to create demand for poor, beleaguered chains. Which spits in the eye of that beloved libertarian fetish, the supply-demand curve.

Think back to college economics. You took college economics, right? If statistics hold, you probably didn’t; your last mandatory exposure to economic theory probably happened in high school civics class, sandwiched between a unit on the Constitution and one on the War Powers Resolution of 1973. Therefore, you probably have a glimmering of the supply-demand curve, but nothing concrete. You vaguely remember that when supply equals demand, we know what something is worth.

But Taylor’s article says that demand should rise to meet supply. So-called casual dining chains have grown since around 2000 by oversaturating markets, mostly suburban malls, and maintaining the just-in-time resupply model pioneered by big-box retailers like Walmart. This flood-marketing model has, for years, served to create demand among young families with reliable income and limited expenses. McDonald's and Pizza Hut used the same model in prior generations.

That model demands steady, basically white-collar economic growth. This failing model dominated the 2016 presidential campaign. Hillary Clinton stumped on the same suppositions, while Donald Trump channeled outrage at the disappearance of jobs in manufacturing and extraction. The jobs that haven’t been automated, have largely been shipped overseas. Domestic employment has bifurcated into executive leadership and the service industry. Working Americans now sell each other, well, Buffalo Wild Wings.

Chains, facing slumps because youth would rather eat at home, or cannot afford to eat out, cry foul. Because they think demand should follow supply, not vice versa. Economists call this “induced demand.” I first encountered the concept in models of urban parking: more parking lots cause more driving, largely because putting stores and homes further apart makes walking an unsustainable cost. Gasoline is cheap; walking becomes tedious.

But food doesn’t follow that one-point model. As better grocery stores increasingly offer inexpensive delivery service, and meal-kit marketers like Blue Apron make gourmet home-cooking available to pure amateurs, simply building new stores behind massive parking lots doesn’t induce demand anymore. In short, market forces no longer make dining out a desirable choice, no longer cheap and convenient, especially in relation to youths’ wages.

Libertarian capitalism declares that market forces are sacrosanct. Whatever people willingly pay for, must perforce be good. Don’t interfere with markets. Unless, apparently, markets shift, and a previously successful business model becomes untenable. The underlying core of this article declares that demand exists to serve producers, not vice versa, and customers who don’t want their product are just wrong. Sounds like chain restaurants just basically declared libertarian capitalism dead.

Productive American industries have cut costs, including labor, for three generations. And service providers now whine that customers won’t, or can’t, buy their product. I think they think they’re crying foul, like an entire generation isn’t playing by the supply-side rules. Under that, though, they secretly concede the truth, that they don’t trust customers. Market providers apparently just can’t handle capitalism if it doesn’t serve the capitalists.

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