The income elasticity of demand and firm performance of US restaurant companies by restaurant type during recessions

Yoon Koh, Seoki Lee, Chris Choi

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

During the economic downturns of 2008 and 2009, many US restaurant companies struggled to avoid heavy losses. However, some still managed to outperform the market and even made large profits in the midst of widespread economic difficulties. McDonald's was one such company and, in light of its example, many industry magazines and newspapers featured articles suggesting that a quick-service restaurant, with a lower income elasticity of demand, might be better able to survive during constrained economic conditions than upperlevel restaurants. This paper empirically examines whether US restaurants' income elasticity of demand and actual financial performances during economic downturns are affected by the restaurant type. The findings suggest that restaurant type showed no significant effects on the income elasticity of demand for US restaurant companies, while fast-food restaurants showed significantly greater accounting performances than those of non-fast-food restaurants during recession. The insignificant differences in the income elasticity of demand and significant differences in accounting performances during the recession may suggest that fast-food restaurants implemented cost control more effectively than non-fast-food restaurants, and the authors' additional analysis confirms this.

Original languageEnglish (US)
Pages (from-to)855-881
Number of pages27
JournalTourism Economics
Volume19
Issue number4
DOIs
StatePublished - Aug 2013

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Tourism, Leisure and Hospitality Management

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