Lesson 2: social and economic environment

Reading:

Among the external forces that influence a hospitality company the most important is economic situation. The inflation, high rate of unemployment, and increased taxes of the 1970s reduced the amount of money the Americans could spend on traveling. Their becoming cautious buyers forced the hotel business to introduce economy chains, and the restaurant business responded with rapid growth of lower-priced fast-food chains.

In the 1990s, however, economic conditions have improved, and current projections suggest real income will rise due to rising income in certain important segments. The baby-boom generation moved into its prime wage-earning years, and the number of small families headed by dual-career couples increased. These more affluent groups demanded more time-saving products, more travel and entertainment, more physical fitness products, more cultural activities, more continuous education. People change spending patterns as their income increases. Ernst Engel found that as family income increases, the percentage spent on food declines, the percentage spent on housing remains almost constant, and the percentage spent on other categories increases. The economic situation of the 1990s has confirmed Engel's Law.

However, that period got the name of the decade of the "squeezed customer". Along with rising incomes came increased financial burdens: repaying debts acquired during the spending splurges of the 1980s, increased taxes, saving ahead for college tuition and retirement. The income distribution was very skewed. At the top are upper-class consumers who are a major market for luxury goods. The middle class also can afford the good life, at least some of the time. The working class must stick close to the basics of food and clothing. The persons on welfare must count their pennies. Changes in major economic variables such as income, cost of living, interest rates have a large impact on hospitality industry. Nevertheless, businesses can adjust their marketing mix to ride out of the economic storm. Restaurants, for example, can vary their menus and offer a number of lower-priced entrees during a recession.

Among factors that influence living standards of people are demographic, such as age structure of population that has been changing during the last 50 years. The most important demographic trend is the aging of population. A falling birthrate has meant fewer young people. At the same time, life expectancy is increasing, which raises the population's average age. Current average life expectancy is 75 years, a 26-year increase since 1900. Nowadays there are twice as many elderly people (in the US they are called "seniors") as there are teenagers. The changing age structure of the population will have a considerable effect on hospitality industry, as the people of different age groups create different segments of hospitality market.

 

 

Exercises:

1. Find in the text the following topical words and phrases, make sure that you are able to explain in English what they mean, and add them to your working vocabulary:

inflation, rate of unemployment, an economy chain, real income, the baby-boom generation, a dual-career couple, affluent groups, physical fitness products, a squeezed customer, spending splurges, economic variables, interest rate, living standards, re­cession, spending patterns, seniors.

 

2. Write out from the text the parts of sentences which contain the following words and phrases and translate them into Russian:

a cautious buyer, prime years, time-saving products, continuous education, to confirm, college tuition, basics, to count one's pennies, to ride out of the economic storm, a birthrate, life expectancy.

 

3. Answer the following questions using the topical words and phrases:

1. What usually reduces the amount of money that could be spent on traveling?

2. How did the hospitality industry respond to changed spending patterns?

3. Why could people improve their living standards in the 1990s?

4. What do more affluent groups of people expect from hospitality industry?

5. What did Ernst Engel find out while studying the family incomes?

6. What is meant by "skewed distribution of income"?

7. How do the living standards of members of different classes differ?

8. Why was the end of the 20^th century called "the decade of the squeezed customer"?

9. What can restaurants do in order to ride out of the economic storm?

10. What demographic trend has been especially noticeable recently?

11. Why does the population's average age raise in spite of the fact that birthrate drops?

12. How does the changing age structure of population affect hospitality industry?