When a craving for a Panera Bread Caesar salad strikes, I have my choice of five restaurants within 10 minutes of my Pittsburgh home.

Convenient? Absolutely.

More importantly though, it exemplifies the extent to which the restaurant industry overexpanded throughout the past two decades. According to the National Restaurant Association, the number of restaurants and bars has grown from 361,000 to 537,000 since 1990.

Consumers' access to easy credit and businesses' generous expense accounts supported the heady growth. Restaurant chains found themselves caught up in frenzied spending, but the trend was unsustainable. Like the housing market, the restaurant industry has overbuilt. Without credit cards, consumers can't afford to eat out as often. And recessionary times have required corporations to slash extraneous expenses -- particularly food -- from their budgets.

Food, food everywhere
Simply put, there are too many places to eat. The ratio of restaurants to people has widened dramatically. Since 1990, population in the U.S. grew just 23%, in comparison to the 49% growth in restaurants noted above.

Faced with rapidly waning demand, food establishments are taking desperate measures to stay in the game. Starbucks (Nasdaq: SBUX), known for its premium-priced offerings, is touting breakfast combos. Denny's is downright giving away meals to lure cash-strapped diners. Still others, like Panera (Nasdaq: PNRA), are increasing menu prices to help sustain the revenue growth to which their shareholders have grown accustomed.

These tactics may be effective in the short run. Eventually, though, supply and demand will be forced into equilibrium.

Too tasty to fail?
Absent some initiative that makes restaurants eligible for government bailouts, you can expect to see the restaurant industry experience some failures. Several chains have already been forced to start closing underperforming locations. Some establishments will be forced out of business all together.

Investors are sitting on pins and needles wondering which firms will emerge as winners from the large pool of contenders. Hot grower Chipotle (NYSE: CMG) (NYSE: CMG-B), which sold for nearly 100 times earnings at the end of 2007, is priced at just 30 times trailing earnings today. Trendy health food juice bar Jamba Juice (Nasdaq: JMBA) has lost 80% of its value over the past year. Bennigan's has already filed for Chapter 7 bankruptcy. Continued...