Cost ReductionOperations

Takeaways From the National Restaurant Association’s Mid-Year State of the Industry Report

Recently, the National Restaurant Association released their State of the Restaurant Industry Mid-Year Update. The report shared in exact numbers what many of us knew. In a nutshell, the labor shortage is currently a restaurant operator’s greatest challenge, rising food costs are resulting in increasing menu costs, and consumers are once again cautious about dining out due to the rising Delta variant.

Let’s take a look at the exact numbers and what this means for restaurants.

The Continued Labor Shortage

January through July of 2021 saw a gain of 1.3 million jobs for eating and drinking establishments. Despite this number, we are still down a million jobs from the pre-pandemic level of 12.3 million. Restaurants and the accommodation sector report one of the highest levels of unfulfilled job openings, and a whopping 75% of operators reported that retaining and recruiting employees was their biggest challenge.

At the end of June, the restaurant and accommodations sector had 1.4 million job openings, the highest number since JOLTS began tracking this data in 2000. A reported 10.1 million job openings in the rest of the economy is leading to increased competition, and many one-time restaurant employees are taking the opportunity to enter a different industry. Operators are responding by increasing pay, with hourly earnings rising twice as fast as those in the private sector.

Consumer’s pent-up desire to return to restaurants and socialize led to increased sales in the first half of the year. Food and beverage sales are projected to reach $789 billion in 2021, up almost 20% from 2020. In 2019, U.S. restaurant industry sales reached a record high of $863 billion.

Despite the high demand, restaurants are reducing their operating hours or asking existing staff to work more hours and cover multiple positions. Reports of bartenders cooking and servers bartending are not uncommon. Some restaurants are so challenged by the lack of staff that they are closing down permanently. Full-service seems to be hit the hardest, with staffing levels down 11% compared to pre-pandemic levels.

Rising Food Costs

Rising food costs, along with rising labor costs, are leading to an increase in menu prices. Operators are witnessing the fastest rate of rising wholesale food costs in the last seven years, with gas and diesel prices also expected to hit their highest level since 2014.

Currently, menu prices are on track to reach their highest annual increase since 2008. By the end of June, menu prices were up 3.9% on a year-to-date basis.

The Effects of the Delta Variant

At the end of June, 39 states had reopened to 100% indoor dining capacity, and 11 states still reported reduced capacity restrictions, with a few states still at 50% indoor dining levels.

As the Delta variant spreads, however, guests are rethinking their return to restaurants. According to a National Restaurant Association survey, 6 in 10 adults have changed their dining out habits due to the rising spread of COVID-19, with 37% opting to order takeout or delivery instead of in-house dining.

The rising increase in mask mandate protocol may also affect restaurant guests’ routine, with 32% saying they would be less likely to dine in a restaurant if they were required to wear masks again. On the other hand, 25% said this requirement would make them more likely to eat in a restaurant.

The Accelerated Restaurant Changes Brought on By the Pandemic

2020 was clearly a year of change for the restaurant industry. And it appears that many of these changes will continue to define the industry through the coming years.

As a means to help restaurants affected by the pandemic, states adopted legislation that allowed alcohol to go. According to Mike Whatley, VP State Affairs and Grassroots Advocacy, National Restaurant Association, “The ability to continue offering alcoholic beverages with takeout and delivery orders could boost off-premise sales by 5%-10% for a typical restaurant that invested in such a program.”

Consumers also appreciated the technology that made the dining process easier. 52% reported they’d like to see more technology that makes ordering and payment easier, while 51% said they’d appreciate the technology that improves customer service. In addition, 57% of diners use the current technology to view a restaurant menu online and 44% place an online order for takeout or delivery.

The pandemic also accelerated outdoor dining, a feature that most guests appreciated. 84% of those surveyed said they favor restaurants being able to set up outdoor dining permanently on sidewalks, streets, and parking lots.

Hudson Riehle, Senior Vice President of Research for the National Restaurant Association, had this to say about the report, “The trends from the first half of the year are promising, but a lot of uncertainty remains in regard to the Delta variant, consumer confidence, and ongoing labor challenges. We expect restaurant pent-up demand will remain high in the coming months. However, in this state of flux, maintaining the availability of on-site dining with few capacity restrictions will be critical to keeping the overall sale momentum going forwards, especially for full-service operators.”

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