2022 was a year of uncontrollable pressures for restaurant operators: rising inflation forced supply costs up, made borrowing capital more difficult and forced operators to raise menu prices. According to the latest National Restaurant Association Business Conditions survey, the trifecta of higher food costs, labor costs and energy/utility costs are now a significant challenge for a majority of operations.

“The restaurant industry is ending the year in an environment that’s the most typical since 2019,” said Hudson Riehle, senior vice president 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.”

Surging costs are a significant challenge

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. A strong majority of operators say food, labor and energy/utility costs are currently significant challenges for their restaurant.

• 92% of operators say food costs are a significant challenge.
• 89% of operators say labor costs are a significant challenge.
• 50% of operators expect to make less profit in 2023.

In November, the Producer Price Index for All Foods — which represents the change in average prices paid to domestic producers for their output — rose for the 18th time in the last 23 months, with 15 of those increases topping 1%. 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. With major input costs escalating, they can make changes to align with local consumer demand while realigning operations for longer term growth,” said Riehle.

Higher prices, smaller margins forcing change

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.

Operators continue to have to make difficult choices to manage their profitability — everything from reducing hours to postponing expansions and even eliminating third-party delivery. Actions taken include

• 87% of restaurants increased menu prices.
• 59% changed the food and beverage items offered on the menu.
• 48% reduced hours of operation on days open.
• 32% closed on days that are normally open.
• 38% of operators say they postponed plans for expansion.
• 13% of operators say they eliminated third-party delivery.
• 19% postponed plans for new hiring.

Operators plan to hire, unless business conditions deteriorate

In the last 23 months, 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 restaurant industry is still 462,000 jobs below its employment level in February 2020.

According to the survey, a majority of both full-service operators (63%) and limited-service operators (61%) say their restaurant does not have enough employees to meet customer demand.

Operators are actively looking to boost staffing levels, with 87% saying they will likely hire additional employees during the next 6–12 months if there are qualified applicants available. But 79% of operators say their restaurant currently has job openings they are having difficulty filling.

At the same time, restaurant operators will continue to balance staffing needs with business conditions. Fifty-seven percent of operators say they would be likely to lay off employees during the next 6–12 months if business conditions deteriorate and the U.S. economy enters a recession.

The National Restaurant Association Research Group conducted the new operator survey of 3,000 restaurant operators in November 2022. Find a report of key findings here. And in February, watch for the 2023 State of the Restaurant Industry report, highlighting the latest data forecasting trends critical to the industry’s growth and success in the coming year.

Source: National Restaurant Association