Where is the restaurant industry going in this turbulent economic period? To cash.

For more than 60 years, the restaurant industry has been co-dependent upon the credit industry, utilizing credit cards as a means of payment processing. With credit cards being turned off by banks, lines of credit snipped and credit card processing rates rising, restaurants face some of their toughest decisions. Whether to switch back to a cash-only economy or hope and pray credit will resume to pre-crisis levels.

We foresee that after New Years 2009, many independent restaurants will shut their doors because sales are dramatically down in some markets and restaurant sectors. Suppliers who normally provide credit terms are now beginning to require cash-only transactions and payment of outstanding debts. Customers are using credit cards less, and dining more economically and locally.

Hospitality in general will suffer over the next few years. As companies tighten spending, less business travel will mean fewer seats filled on airlines, fewer beds occupied in hotels and less seats filled in business-oriented restaurants. Similarly, tourism-based travel has already shown signs of diminishing. While gas prices had a nominal impact, the economic crisis will have a far greater consequence as people in the US slow their spending. With the dollar rising against European and Asian currencies, foreign tourism to the US will slow as well.

The restaurant industry will, we predict, begin a slow and painful conversion to an all-cash economy, particularly within the independent restaurant world. We expect the industry will begin to also adopt a European-style service charge system to ensure that sufficient funds are available from all sales to pay for service costs.

Accepting cash-only is not unique in the restaurant world, and is likely to increase to a larger variety of independent properties. We think the sector should adopt a 'discount for cash' practice to 're-train' their customers to pull out cash instead of their Visa or MasterCard. Converting to a largely or all-cash business is not a bad thing and will save considerable money for operators that previously did a lot of credit card transactions previously.

We believe a marked drop in the number of new restaurants will be seen in 2009 to 2011, with a number of closings, even in the world of franchises and owned-chains. Lower fuel costs will mean purveyors will be able to lower prices, but those restaurants not in charge of their own supply chain will continue paying a premium for food and supplies.

Marketing will become an essential part of restaurant and hotel survival, but in the most innovative and unique ways. This will put further strains on restaurant and hotel management and produce slow, nominal yields.

Some restaurants will be able to, and should offer their own credit accounts to corporate customers, outside the credit card system.

Employment within the hospitality industries will be reduced as independent and franchise properties shut down and no replacement operators fill the void. Salaries will not rise either in a deflationary mode as the industries shrink.

Menus too will change, with more "comfort" food items at lower prices. Restaurants will be forced to watch every fraction of a cent in spending and to take careful, strong control over their supply chain to ensure prices remain stable. Strong deflationary pressure in 2009 will lower profit expectations and force the downsizing of previously prosperous operations.

We believe small "ethnic" restaurants will actually fare better. For example, Chinese, Mexican and low-end Italian restaurants will do better than upscale American, French or Italian and steakhouses. Airport hotels and motels will do better than downtown mid to high-end hotels.

Retail will equally be weak in 2009 to 2011, with many retailers closing their doors after the New Year. Few stores will expand to replace those retailers that close. As a result, commercial real estate will suffer, as will many local commercially zoned neighborhoods and the municipalities that depend on taxes from local sales and business taxes.

Overall, 2009 will be a very bumpy ride and our previous predictions of a despression will be seen in a variety of areas.