Operations

The Current State of the Restaurant Industry as Winter Looms

Restauranteurs relished opening their indoor dining again as COVID-19 waned. It had been a brutal year, with many of their fellow operators closing their doors for good. But what they found on the other side of an on-and-off pandemic was not quite what they expected.

Guests Returned—Workers Did Not

The spring and summer of 2021 saw guests returning to restaurants in record numbers. Restaurants reported doubling their pre-pandemic business. The only problem was that, while business was booming, they were working with half the number of regular staff.

Many restaurants and other businesses fought hard to delay laying off workers due to business closures, restrictions, and lack of incoming funds. Despite the hesitation, the inevitable occurred, and by the end of April 2020, two-thirds of restaurant employees had lost their jobs.

As restrictions started lifting, operators were surprised to find their job listings garnering little response. As the lack of employees continued despite expired enhanced federal unemployment benefits, it was clear that the pandemic had changed the landscape of the hospitality industry for good.

Employers addressed some long-time issues in the restaurant industry by raising wages and coming up with less grueling work schedules. Still, the shortages persisted, forcing current employees to work more hours or double-duty as bartenders, servers, and hosts.

Where did these workers go? Many found employment in the financial sector, insurance, and real estate. They found better wages, regular hours, and a more balanced lifestyle, and they’re not coming back.

Supply Chain Backup and Rising Food Costs

The global supply chain continues to see disruption. Delays at ports and labor challenges have left many manufacturers and food producers scrambling to fill orders. And, of course, with a supply shortage and an increase in demand comes rising costs: Economics 101.

Rising food costs and shortages in chicken, takeout containers, straws, and much more have all left restaurants scrambling for alternatives.

The State of the Restaurant Industry

A recent survey by the National Restaurant Association revealed that 58% of operators felt business conditions were deteriorating and worse in September 2021 than at the start of the summer. Only 9% reported that business conditions had improved.

Over 60% of limited-service and 80% of full-service restaurant operators said their business was not open at full capacity due to inadequate staffing. Over 75% also reported a recent decrease in customer demand for indoor dining due to the Delta variant.

Food supply challenges impact 95% of restaurant operators who report experiencing shortages in essential food and beverage items. This has led to over 80% of full-service operators changing their menu.

Food and labor costs are up, resulting in lower profit margins. As a result, about 64% reported lower profits in September than in the earlier summer months.

The Drive-Through Still Prevails

The one thriving area of restaurant operations appears to be drive-throughs. I recently thought I was in yet another Los Angeles traffic jam, only to find I’d inadvertently been waiting in a drive-through line at In-N-Out Burger. In my defense, the line went out of the parking lot and down about two blocks.

While full-service restaurants fell by about 30% from 2019-2020, fast-food drive-throughs grew 30%. The Twin Cities Pioneer Press reported a Taco Bell Defy restaurant opening with four lanes for cars and a second-story kitchen that will lower orders to customers via small elevators. Drive-through coffee shops are opening without any indoor seating.

The Good News

Statista recently reported that “The year-over-year change of seated diners in restaurants in the U.S., compared to 2019, was zero percent on November 23, 2021.”

The latest Black Box Intelligence report also highlighted some positive trends. The week ending November 7, 2021, saw a 0.6% increase in sales growth compared to the previous six weeks. Average guest checks are also on the rise, with some segments experiencing the largest year-over-year gain. All states reported positive sales growth except for Hawaii, North Dakota, Oregon, and Wisconsin.

The Bad News

Both limited-service and full-service restaurants saw the worst staffing levels since June. The front-of-house for full-service restaurants experienced the biggest shortcomings. This lack of labor seems to be leading to declining ‘speed of service’ guest sentiment.

Despite record cash flows, it’s clear that the restaurant industry is still struggling after what some call a brutal summer. But, while there does not seem to be any resolution in plain sight, there is one thing we can count on. As Patti Smith said, “The only thing you can count on is change.”

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