Source: www.insideradio.com, January 2023
Restaurant clients may need some extra attention in the coming months in order to convince them to spend money on advertising. Faced with higher food and labor costs, half of the operators surveyed by the National Restaurant Association expect to see profits decline this year. But many are still willing to spend money, however, at least when it comes to employment. Nearly two-thirds (63%) of operators say their restaurant does not have enough employees to meet customer demand.
The mixed signals come as restaurateurs look back on a year in which they faced a trifecta of higher food costs, labor costs and utility costs, which the National Restaurant Association says are “significant challenges” for a majority of operations. Food and labor costs are the two most significant line items for a restaurant, each accounting for approximately 33 cents of every dollar in sales. Other expenses — such as utilities, occupancy, supplies, general/administrative and repairs/maintenance — combine to represent about 29% of sales. In the survey, 92% of operators said food costs were putting pressure on their business. And 89% said the same about labor costs.
“The restaurant industry is ending the year in an environment that’s the most typical since 2019,” said Hudson Riehle, Senior VP of Research for the National Restaurant Association. “Moderate but positive employment growth across the economy and elevated consumer spending in restaurants will allow the restaurant industry to kick off 2023 on a more optimistic note than the last few years, but operators remain braced for potential challenges in the new year,” he said in a statement.
In November, the Producer Price Index for All Foods rose for the 18th time in the last 23 months, with 15 of those increases topping one percent. While menu prices also increased 8.5% between November 2021 and November 2022, these increases are lower than grocery store prices which increased 12% over the same period.
“In this kind of economic environment, typical operators don’t have much margin for error,” Riehle said. “With major input costs escalating, they can make changes to align with local consumer demand while realigning operations for longer term growth.”
Restaurants run on notoriously thin margins, so 50% of operators expect to be less profitable in 2023, while another 34% expect their profitability to remain the same as it was in 2022. To manage their profitability, operators are considering a wide range of moves. The most common is raising menu prices, something 87% of restaurant owners say they are looking at. And 59% are making changes to the food and beverages they offer. Nearly half (48%) are also cutting back on their hours of operation.
Cutting expenses is less common, however. Four in ten say they have delayed expansion plans while two in ten are postponing hiring. In the last 23 months, the Association says restaurants added nearly 2.2 million jobs. That’s 400,000 more jobs than the next closest industry — professional and business services — added in the same period, but the industry is still 462,000 below its employment level in February 2020.
The National Restaurant Association Research Group conducted the survey among 3,000 restaurant operators in November 2022. It will release its 2023 outlook next month.
