The term ‘business environment’ is used to refer to the institutions, individuals and other external forces that may affect the performance of a restaurant but are outside its control. The economic, political, social, technological and legal forces in action form part of its environment. Also, the competing enterprises, governments, courts, media and other institutions operating outside your business are its environments.

How Economic Environment Impact in Restaurant Industry?

Rate of inflation, rate of interest, stock market indices, changes in disposable income of people and the value of currency are some of the economic factors affecting your restaurant. Long and short term rates of interest can considerably influence the demand of services and products. An increase in the gross domestic product leads to the rise in disposable income and enhances the demand for restaurants. Again, high rates of inflation result in creating limitations on business enterprises as they heighten the purchase of machinery & raw materials and employees’ salaries. 

Personal budgets affect party plans and eating out at restaurants. During a poor economy, people are less likely to visit restaurants. Travelling too is checked, which indirectly affects diners. Families prefer to stay home and prepare their own food even when they have vacations.

The labor market is growing stronger and with it consumer spending. Besides, average hourly incomes have also increased. These are positive signs for the restaurant industry. This economic situation is a sign that an industry is going to succeed. 

How Social Environment Impact in the Restaurant Industry?

Social forces such as traditions, customs, social trends, values, expectations of the society from the business are social environments. Traditions define that social practices have lasted for decades or even centuries. For instance, Christmas, Id, Diwali, New Year, Thanks Giving and Halloween provide great financial opportunities for restaurants. Values refer to concepts that a society holds in great esteem. Social justice, individual freedom, national integration and equality of opportunity are major values cherished by most people. These values convert into the responsibility of business towards a society, freedom of choice in the market and non-discriminatory employment practices. Social trends create different threats and opportunities for business enterprises. For instance, a huge segment of urban dwellers has become health conscious. This has created a demand for products such as bottled mineral water, organic food and less oily food. While this came as a blow to the industry initially, restaurants have now adapted to it and are accordingly preparing their food. 

What Affects the Social Environment?

  • The anxiety of quality of life

  • The approach towards lifestyles, preferences of consumers and lifestyles

  • Expectancy of life 

  • The number of women in the workforce

  • Population shifts

  • Composition of family

  • Habit of consumption 

    How Technological Environment Impact in Restaurant Industry?

Technological environments are those forces that relate to scientific innovations and improvements, providing new ways of producing services and goods and new techniques as well as methods operating a business. 

Technological factors have emerged to be demand facilitators for the restaurant industry in the 21st century. In this industry, technology is the biggest influencer. Technology has made communication easier between restaurants, stakeholders and consumers in various parts of the world. An increasing number of guests research and try to come across the best deals before finalizing the final booking. Hence, there is no doubt that technology facilitates the hospitality industry to a great extent.

The restaurant industry has increased the use of technology all over the world. Digital entries, messages and bookings have become common due to mobile technology and social media. So it can be easily concluded that both buyers and sellers have benefited from technology. As of 2020, mobile technology and IoT can affect several new changes. 

But that does not in any manner undermine human touch without which the entire industry might encounter severe losses. Highlighting this, we can bring into reference the spread of Coronavirus in China where people have stopped getting out of their homes, working or eating out in fear of the contagious disease. This has brought about dark days for the restaurant industry in that country.

How Political Environment Impact in Restaurant Industry?

Globally, political factors have a deep and direct impact on the restaurant industry. Whether it is terrorism or the altering government regimes, the effect on the industry is always direct. The importance of political conditions in business success depends on the predictability of business activities in a stable political situation. A country with political stability and general peace is lucrative for both domestic and international tourism, which is a major contributor in the restaurant industry. Political stability creates confidence among investors and their business owners in long-term projects. Threats to law and order and political unrest lead to business uncertainty. Egypt and Kashmir in India are examples of the poor tourism industry and hospitality industries. A place with a lot of criminal activities is a threat to law and order, and leave alone guests, restaurant owners are scared to open their business every day.

Check the attributes of the political environment below.

  •  A country’s constitution

  • Existing political system

  • The extent to which economic and business issues are politicized 

  • Ideologies and political practices of ruling political parties

  • The level to which governments intervene in businesses

  • The relationship of the country with foreign countries 

    The perspective and inclination of government officials towards business may either have a negative or positive impact on the hotel industry. For instance, even after the Indian economy opened in 1991, the bureaucratic red-tapism checked the entry of foreign firms to the Indian business market. Sometimes, it took months to just process the applications made by these firms. This slow procedure discouraged these firms from investing in India during that time. But with the changing times, foreign companies have made it big in the country. 

    How Legal Environment Impact in Restaurant Industry?

The legal environment comprises different legislation passed by the Government, court judgements, administrative orders by government authorities as well as decisions by various agencies and commissions at each level of the government, whether it is local, state or central. Every business must know and abide by the rules and regulations of the land where it operates. Not complying with the laws can put the business in legal issues, emerging from which might get difficult. If you wish to have a hotel in India, having knowledge of Companies Act 1956; Industries (Development and Regulations) Act 1951 and such other legal enactments that the Parliament modifies from at intervals is important for doing business. 

The legal environment in the restaurant industry is quite a complicated one as both public and employee interests are catered to. Other laws too influence the sector, but public safety and labor laws are of prime importance. Restaurant owners cannot compromise on market share by losing focus on risk management. The legal challenges and pressures in the tourism industry are huge. The effect of the legal environment can be shown with the help of government regulations to preserve consumers’ interests. For example, the caution on a menu card that a particular item may have nuts, milk products, soy, shells and such other allergic ingredients. For brands operating in multiple nations, it is crucial to comply with the local laws. 

Train your staff properly and hire only certified degree holders to avert legal hassles since only certified professionals are equipped with the level of knowledge and expertise to handle the trends and pressure at restaurants. Also, hiring trained and skilled employees is the interest of the employees who would stay unemployed if all restaurants had hired untrained and unskilled workforce to save costs.

These parameters help you decide if the restaurant industry is moving in the right direction or not, what the threats and weaknesses are, what opportunities are there and what are the strengths of your business and the industry. You can then make an informed decision about the right steps to take your restaurant business further.

About Author

Abhi Chauhan

The Restaurant Academy Professor. My studies in hospitality and experience of working in locations such as the USA, Switzerland, India and Iceland has equipped me with extensive knowledge concerning the restaurant industry and provision of the very best customer service. I have over 12 years of experience in the restaurant industry.

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