Like countless other industries, the restaurant industry has been completely redefined by the COVID-19 pandemic. Restaurant owners felt optimistic about the post-COVID world but were immediately presented with a continued headline problem: inflation.
Other supply chain-related events, which spanned from restaurant equipment (creating issues for restaurant development and timing) to the Avian flu and “eggflation” issues, also negatively impacted the industry.
Inflation has had a far-reaching impact on the restaurant industry – affecting everything from the cost of materials to wages.
Average food prices, while trending lower, are still well above pre-pandemic levels. As of June 2023, the Producer Price Index of All Foods remained 24% above its February 2020 reading. Many critical food items such as eggs, cheese and butter have seen dramatic increases, leaving restaurants no choice but to increase menu prices in response.
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Oliver Bennett[/caption]
Climate issues such as drought, fires and record-setting heat have also limited the availability of crops, exacerbating the inflation problem. Food brands have found themselves short on vital food products such as potatoes and other grains.
One especially stressful part of the equation for restaurant owners is how much food price inflation is passed on to customers. Restaurants need to remain competitive while still retaining a profit. If your restaurant is taking a 10% menu price increase and competitors are only taking 5%, you’re out on a limb.
Overall consumer spending in restaurants has been modestly higher in recent months, but mostly due to higher menu prices. Adjusting for inflation, the recent trendline of restaurant sales has been flat to lower, according to the National Restaurant Association, which is why 2023 has proved so challenging for restaurant operators and their bottom lines.
In addition to struggling to combat increased food costs, restaurants are also navigating increased labor costs.
Restaurants have increased wages not only to attract workers but also to compete with other employers, particularly retail outlets. When major employers such as Target Corp., Amazon.com Inc. and CVS Pharmacy Inc. move to a $15 wage, it doesn’t matter what the federal minimum wage is. Restaurants must compete.
What’s next? Although the outlook is uncertain with the threat of a possible recession on the horizon, indicators are displaying that any recession will likely be modest and manageable. Restaurants should take advantage of the lessons they have learned in the past few years and find hope in the signs that the worst is behind us.
Although the impact of a lengthy war in Ukraine still hovers over future supplies and prices, the labor situation seems to be stabilizing, as stimulus payments have ended, and people are reentering the workforce.
The key components for restaurant owners are employees and partners, making labor and training significant factors for restaurants. The labor market continues to be tight but there are signs of hope. Restaurants have learned to operate with fewer people and rely more on technology, which is necessary as the labor market continues to tighten. They must also learn how to quickly pivot, whether that means embracing innovation or improving their services by being more flexible and adaptable.
While restaurants have faced countless challenges in the past few years, the setbacks have only proven how resilient the industry is. Those that made it through 2022 relatively unscathed should be proud. n
Cristin O’Hara is managing director and head of the Restaurant Group at Bank of America Corp. Oliver Bennett is senior relationship manager of Global Commercial Banking for Bank of America in Rhode Island.
