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The Income Elasticity of Demand and Firm Performance of US Restaurant Companies by Restaurant Type during Recessions

Author

Listed:
  • Yoon Koh

    (Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, 229 C.N. Hilton and College, Suite 236, Houston, TX 77204, USA)

  • Seoki Lee

    (School of Hospitality Management, The Pennsylvania State University, 217 Mateer Building, University Park, PA 16801, USA)

  • Chris Choi

    (School of Hospitality and Tourism Management, University of Guelph, MACS 304, Macdonald Stewart Hall, 50 Stone Road East, Guelph, Ontario N1G 2W1, Canada)

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 upper-level 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.

Suggested Citation

  • Yoon Koh & Seoki Lee & Chris Choi, 2013. "The Income Elasticity of Demand and Firm Performance of US Restaurant Companies by Restaurant Type during Recessions," Tourism Economics, , vol. 19(4), pages 855-881, August.
    • Handle: RePEc:sae:toueco:v:19:y:2013:i:4:p:855-881
    DOI: 10.5367/te.2013.0250
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    References listed on IDEAS

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    Cited by:

    1. Hyeongwoo Kim & Liping Gao, 2017. "Consumer Spending on Entertainment and the Great Recession," Auburn Economics Working Paper Series auwp2017-07, Department of Economics, Auburn University.
    2. Kwanglim Seo & Jungtae Soh & Amit Sharma, 2018. "Do financial constraints affect the sensitivity of investment to cash flow? New evidence from franchised restaurant firms," Tourism Economics, , vol. 24(6), pages 645-661, September.

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