Running a restaurant right now is a daily turn at Jenga, according to the National Restaurant Association, with operators carefully pulling from the foundation of their operating plans to prop up new supports in a changing economy.
The costs of goods restaurateurs need most have continued to accelerate, and according to a new survey from the association, 46 percent of operators say business conditions are worse now than they were three months ago.
The National Restaurant Association said the finding follows a prior survey in which 43 percent of operators said they think conditions will worsen in the next six months, which was the highest level of pessimism since 2008.
“Running a restaurant is a balancing act requiring adaptation and innovation, two areas where restaurateurs excel,” said Michelle Korsmo, president and CEO of the National Restaurant Association. “And while operators are more pessimistic about the economy, they are working hard to continue to provide quality and value for customers. Serving great food, providing exceptional service, and creating a memorable experience remains the foundation of every restaurant.”
Findings from the new survey and report highlight how current economic conditions are disrupting the industry.
Soaring Costs Are Limiting Restaurant Operations
Approximately 95 percent of a restaurant's sales dollars go to food, labor, and operating costs — all of which are increasing each month, per the report. While wholesale food prices have increased 16.3 percent in the last 12 months, menu prices have only risen 7.6 percent in the same period and only 16 percent of operators report adding fees or surcharges to customer checks. The result: Profits are suffering, with 85 percent of operators noting that their restaurant is less profitable than it was in 2019.
Also in the new survey, 88 percent of operators said their total food and beverage costs are higher than 2019 and across the board, many other costs are up.In addition, 65 percent of operators say their total occupancy costs are higher than 2019, and 80 percent of operators say their total utility costs are higher than 2019. A total of 94 percent of operators note that their other operating costs (supplies, G&A, etc.) are higher than 2019.
“Consumers are watching prices rise faster in grocery stores than they are in restaurants and see an increased value in spending their food dollars in restaurants,” said Korsmo. “However, the moderate menu price increases aren't balancing the surging input costs and this is forcing operators to cut hours, change their menus, postpone expansions, and reduce third-party delivery.”
Pandemic Debt Is Due – Can Operators Pay?
During the first two years of the pandemic, 65 percent of restaurants took on new loan debt to adjust business models and continue operating, according to the National Restaurant Association. Per the new survey, the loans were a mix of forgivable government loans, government disaster loans and private-sector loans.
Paycheck Protection Program (PPP) loans were the most common – taken on by 59 percent of operators, and 48 percent of operators took on an Economic Injury Disaster Loan (EIDL) issued by the U.S. Small Business Administration or lending partner. A total of 31 percent took on a private-sector loan from a bank, credit card or other entity based on data from the National Restaurant Association.“
For many operators who received EIDL loans, the deferment period for payment will soon end and it will be an overwhelming challenge for a majority of them to begin repayment right now,” said Korsmo. “According to our latest survey, of the operators who have not begun loan repayment, only 23 percent say they will be able to make principal and interest payments. Another 46 percent expect to be able to pay the principal, but not 30 months of accrued interest.”
Restaurants Slowly Add Jobs to Get Back to Pre-Pandemic Employment Levels
A strong majority of restaurants are still actively seeking to fill positions – even as they face building headwinds of a slowing economy. Despite adding 74,000 jobs in July, in the new survey, 65 percent of operators report not having enough employees to support customer demand, and 84 percent of operators say they will likely hire additional employees during the next six months.
According to the report, a total of 19 percent of full-service operators say their restaurant is currently more than 20 percent below necessary staffing levels; 21 percent of limited-service operators say their restaurant is more than 20 percent below required staffing levels; and 81 percent of operators say their restaurant currently has job openings that are difficult to fill.
“Diners choose restaurants for the hospitality and experiences they get at our tables, and we hire talented people to create that atmosphere,” said Korsmo. “While many industries are beginning to slow their hiring, ours continues to rebuild our workforce. The restaurant industry has good-paying jobs available at every experience level for people from every background. And these jobs provide the skills necessary to be successful in any career, and in life.”
For the report, the National Restaurant Association Research Group conducted the new operator survey of 4,200 restaurant operators from July 14 to Aug. 5, 2022.
The association’s report and key findings can be found here.
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