The National Restaurant Association and Restaurant 365 each recently released reports on the state of the industry in 2023, and their news is loud and clear: restaurants are facing financial and operational challenges like never before.
But the upshot is equally clear: the industry is adapting. Technology and data are becoming more mainstream in every part of a restaurant’s workflow, enabling efficiencies that were once unimaginable. Many have also abbreviated their menus and now deliver only the most popular items and maintaining the quality that consumers expect.
In this article, we look at the trends that each report highlights, what they mean for the industry and how owners can inform themselves and adapt to the changes to strengthen their businesses and profit margins.
Food costs are expected to remain on the rise
The biggest challenge for restaurants in both reports came as no surprise—food costs rose exponentially in the past year. According to Restaurant 365, nine in 10 restaurants reported a substantial rise in food costs, and 94 percent passed those costs on to the customer by raising menu prices. The NRA’s numbers reflected the same sentiment. The same proportion of operators report that food costs are a significant challenge, and 15 percent are still adding a surcharge to customer checks because of higher costs.
Of course, the immediate challenge to rising costs is whether it drives away customers priced out of a meal at the restaurant. However, the underlying challenge has the potential to be equally as damaging for establishments, and that is whether they can maintain the quality product and level of service that customers expect with increased menu prices. Customers may be able to tolerate poor service for a cheap meal, but as the price gets higher, it will become harder and harder to do.
Establishments are experimenting with other options as well. Simplified menus are maximizing margins, and dynamic pricing models and cost-tracking technologies are enabling tailored pricing that varies based on the time of purchase.
Restaurants should also keep vendors honest with pricing. Looking for competitors with lower prices for the same products gives establishments leverage to negotiate, and operators can lock in more favorable pricing terms for key ingredients and supplies. Inventory and ordering technology can also be used to properly forecast sales and specials on a daily and weekly basis, enabling cost-efficient ordering and less food waste.
A labor market that is getting more expensive and shrinking
The second takeaway was equally as unsurprising as the first: it is harder than ever to recruit and retain talent in the industry.
After years of being affected by the pandemic, Restaurant 365 cited that the total workforce only just returned to around 11.3 million people, the same level as prior to the COVID-19 pandemic. But the struggle remains: they also found that 37 percent of restaurants say that their top challenge is recruiting.
The quality of the overall talent pool is low, with many of the most talented workers switching industries during the pandemic. The NRA noted that 62 percent of operators continue to report that they are understaffed, and 1.4 million jobs are still unfilled.
In the face of the circumstances, the reality is that “good enough” is no longer good enough. To attract quality talent—or any talent at all—operators need to rethink how they are advertising their open positions. The use of referral programs, career pages and social media placement are proving to be effective strategies to attract talent.
But employers need to go a step beyond just getting people to apply. They need to immediately engage with applicants and get them onboarded swiftly and efficiently, leaving as few gaps in communication as possible. Software solutions are becoming more ubiquitous—and often, less expensive—ways to onboard staff, and many offer options that make scheduling and day-to-day operations easier, as well as a helpful way to retain employees and keep them happy.
Getting used to the “new normal”
The NRA zeroed in on another trend: the pandemic changed people’s interactions with restaurants dramatically, and those changes are here to stay. People are not buying lunch during the workday or going out after work, and they are more likely to order takeout than ever before. Seventy percent of consumers say they are likely to order a multi-course meal for takeout, and 90 percent of restaurants are planning to keep their takeout offerings.
The pandemic changes are here to stay, and that might be for the better. Takeout and delivery are new sales channels for many restaurants and have opened their food offerings to an entirely new consumer base. Those sales will only continue to grow and are ripe for dynamic pricing that improves the bottom line.
Technology is becoming more widely used
Where costs and labor pose challenges to the industry, new technologies pose an enormous opportunity for overcoming them and thriving during an uncertain economy. The increasing accessibility and acceptance of technology have made it more widespread in the industry, with nearly 30 percent of restaurants planning to spend additional resources on tech in 2023, according to Restaurant 365.
Today’s solutions can simplify and automate nearly every function of a restaurant. They track vendor costs, forecast sales and purchasing and track financial data down to the minute.
Restaurants on the forefront of technology are operating with the help of AI and robots. In non-customer-facing roles, they are improving order speed and accuracy. In customer-facing roles they are taking over communications: taking phone orders, text message marketing and order updates, taking orders in the restaurant and upselling.
Tech is helpful, but the choices can be overwhelming for restaurants on a budget. Costs can be expensive, and establishments need to be thoughtful about which different options they pursue.
Pursuing options in the back of the house will make an enormous difference in operations, product quality, and efficiency with both time and cost. In the front of the house, investments can be effective in customer experience and the ordering process. Both can have a major impact, but which to implement varies based on specific needs.
Growing in an uncertain environment
As restaurants continue to deal with higher food costs and labor shortages that have become the “new normal,” more operators are turning to technology as a solution that creates financial and resource efficiencies.
If you are evaluating how technology could play a role in your restaurant business, the Windham Brannon restaurant team can help you evaluate potential solutions and their providers. We will review implementation costs and map out your return on your investment. For more information, talk to your Windham Brannon advisor or contact Maggie Wise, Principal at Windham Brannon.
