Restaurant Industry Insights

Restaurant Operators’ Response to Rising Costs

When inflation began its upward trajectory, many economic forecasters saw it as the result of disruption brought on by the pandemic. This included supply chain upheavals, labor shortages, and fiscal support by the government. Then, the war in Ukraine erupted, putting even more pressure on food and fuel prices. The cost of food saw the largest 12-month increase from August 2021-2022 since the period ending in May 1979. 

In response to the rising inflation, the Federal Reserve has been raising interest rates at an unprecedented 0.75 percentage points at a time. Their goal is to slow down spending, hiring, and wage gains. Time will tell the result of this strategy.

So, how is our current economy affecting restaurants? The National Restaurant Association’s latest survey looked into restaurant operators’ responses to higher costs and how they are offsetting these challenges. Let’s explore their findings.

Restaurant Business Conditions

Of the 4,200 restaurant operators surveyed between July 14 – August 5, 2022, 46% said business conditions were worse compared to three months ago. A stunning 85% said they are less profitable than they were in 2019. 

Not surprisingly, 88% reported higher food and beverage costs, and 94% said their operating costs, which include general and administrative expenses and supplies, were higher. Additional rising costs include occupancy, reported by 65% of those surveyed, and utilities, noted by 80%. In addition, just over 60% stated they don’t have enough employees to fill their positions, and 86% said that labor costs are higher. 

Restaurant Operators’ Responses to Rising Costs and Conditions

In response to these unprecedented conditions, restaurants have taken extraordinary action. Restaurants are managing these costs in the following ways. 

  • Just over 90% of restaurant operators increased menu prices. In August, menu prices rose 8%, the highest year-over-year hike of 2022. Full-service items rose by almost 9%, while quick-service prices increased by 7.2%. 
  • About 65% changed their menu. Most have trimmed their menu significantly and streamlined their recipes in an attempt to reduce food costs and waste. Some focus on higher profit margins, while others lean toward customers’ favorites. 
  • About 60% reduced their operating hours on the days they are open, while almost 40% started closing on days previously open. About four-in-ten report operating at less-than-full capacity, and 44% said they are postponing expansion plans. 

Evaluating your employees’ availability, market data, and demographics can help you decide if reevaluating your hours of operation is right for you. For most, the goal is to get back to regular working hours. That said, the current labor crisis is due, in part, to a demanding schedule specific to the restaurant industry. Because of this, some owners and operators have examined the work-life balance of their employees and reduced hours to accommodate their requests.

The labor market is, in large part, a key to the inflationary concerns. Companies are increasing wages to attract employees who are then spending their earnings.   

  • About two-thirds of operators reported taking on new debt since the advent of the pandemic. This comes in the form of the federal Paycheck Protection Program, the Economic Injury Disaster Loan, and private loans from banks or credit cards. About 44% owe around $50,000-$200,000, and 31% fall into the $200,000-$1 million range.

The steps restaurants take in an economic slowdown are as varied as their concepts and menu. However, despite the possibility of a looming recession, 84% of survey respondents said they would probably hire staff in the next six months if qualified candidates were available. 

The one constant in the restaurant industry is changing. Many of those that adapt to this changing landscape and continue to create innovative dining experiences will weather this storm and come out on top, yet again. 

FAQS

What can restaurant operators do during an economic downturn?

While every brand and concept is different, a few key strategies restaurants turn to during slowdowns include embracing technology, changing their menu and offering LTOs, cutting costs, and keeping an eye on trends. They may also change their operating hours.

How do restaurants handle short staffing?

The answer to that question depends on what area of the restaurant they find themselves short-staffed. If it’s the BOH, they may simplify the menu, reducing the required prep work. If it’s the FOH, operators may start wait lists and limit dining capacity, despite open tables. While this practice is necessary, it can also result in disgruntled customers. Turning to technology, like Target Workforce, can help operators get the qualified staff they need to operate at full capacity. 

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