Will Restaurants Go Hungry?

This post first appeared on Minyanville.

It’s a tough time to be peddling $10 crab cakes and $12 cocktails: Just ask restaurants throughout Manhattan, and nationwide.

As the economic downturn picks up speed -- and consumers continue what's now becoming a historic retrenchment -- dining out is increasingly becoming a luxury many Americans are choosing to do without. This is forcing restaurateurs to get creative, get friendly, and get back to basics.

The New York Times reports diners are now finding waitstaff vastly more eager to serve, acutely attentive managers, and a dining experience that's positively enjoyable. Gone are the days when just getting a reservation was a feat unto itself. The only problem: Stomaching the fact that most meals could be eaten at home for a fraction of the cost.

Restaurants are notoriously challenging to run successfully: Razor-thin margins and fleeting trends mean only the savviest chefs are able to consistently retain their clientele.

New York is particularly hard hit, as Wall Street prepares for what are likely to be lean years ahead. It’s estimated that fine-dining tabs are down as much as 12% to 15% in Manhattan - which could mean the different between scraping by and folding for many eateries. Owners are calling this January the worst on record.

Many highbrow bistros and cafes are succumbing to the pressure, lowering prices and offering deals unthinkable just a few months ago. Others, like the popular Chanterelle, are holding out, hoping name recognition and cachet will see them through.

Typically, investors aiming to profit from changing consumer preferences seek out affordable dining options during tough times; trading down from Chipotle (CMG) to Taco Bell (YUM), or from California Pizza Kitchen (CPKI) to Domino's (DPZ). This type of shift towards thrift isn’t uncommon during economic slowdowns - but the speed at which consumer preferences have changed seems to have caught many restaurants off guard.

These patterns aren’t just a coincidence: Necessity breeds change. With credit lines being cut, be it by Capital One (COF) or Target (TGT), consumers simply don’t have the disposable income -- or disposable debt -- to keep on spending at the breakneck pace retailers had grown accustomed to.

As consumers at every social level face their changed economic reality, superfluous purchases are the first to go.

So much for that foie gras. Anyone for tap water and free bread?