Inflation 2022: Is the restaurant industry doing better or worse than before the pandemic?

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The restaurant industry was first and hardest hit when COVID-19 shut down the economy. According to the National Restaurant Association, companies laid off or furloughed 8 million hospitality workers and lost $280 billion in sales in the first 13 months of the pandemic.

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The virus has wiped out a lot of deadwood on the forest floor, but restaurants that survived the onslaught have adapted, adjusted and endured. Then, when the vaccines were rolled out and the economy reopened, restaurants resumed operations.

“The industry is on track to reach pre-pandemic numbers,” said Hospitality works founder Isidore “Izzy” Kharasch, an industry consultant in Chicago who has worked with over 700 restaurants in 30 years. “Although the way these numbers are achieved is very different.”

Indeed, the worst inflation in 40 years has thrown cold water on the industry’s recovery just as post-pandemic sales were beginning to pick up. Here is where things stand today.

Restaurants are making pre-COVID money, but now it’s worth less

As Kharasch said, the industry is closing in on pre-pandemic numbers, but today’s dollars can’t buy as much as they could back then due to inflation.

At the start of the year, the National Restaurant Association predicted the industry would make $898 billion in sales, up from $864 billion in 2019. On paper, that’s a huge leap forward, but when adjusted for inflation, $898 billion is actually less than the industry’s pre-pandemic numbers.

Switching to takeout was a blessing and a curse

During the pandemic, the brick-and-mortar stores that survived are those that successfully transitioned to online shopping when customer demand shifted to e-commerce. Likewise, restaurants had to pivot or die – only they had to move from sit-down dining to take-out and delivery.

“Before the pandemic, all of the full-service restaurants I look at were doing about 3% to 6% take-out,” Kharasch said. “Today, they carry out up to 20% of their activity as transport and/or delivery.”

Many restaurants survived by embracing take-out and delivery, but this was meant to be a stopgap measure – food establishments simply weren’t built to support this business model for so long.

“It puts more pressure on these restaurants because they weren’t designed for this style of service,” Kharasch said.

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Inflation has made running a restaurant much more expensive

Rising prices have hampered the restaurant industry’s recovery in two ways. First, inflation has increased the cost of doing business. According to NRP:

  • Labor costs are up 15% in 2022 compared to the previous year
  • Wholesale food prices increased by 17%
  • The rent has increased by 15%
  • The price of cooking fuel has increased
  • The price of paper goods like bags and containers has quadrupled
  • The price of gasoline forces owners to pay their delivery drivers more

At the same time, diners spend less

On one side of the coin, inflation is forcing restaurateurs to spend significantly more on labor, fuel, food and supplies, but rising prices are also eating away at profits on the demand side. Customers today simply have less money to spend on dining out.

“Inflation definitely plays a role in the price of food when customers go out for dinner,” Kharasch said. “If inflation continues at this rate, then we as an industry are on the edge of what I call a sales shift. Customers will start to self-regulate how they spend money.

The “sales lag” could mean customers are dining out less often, but another scenario is likely more likely.

“It’s possible they’re going out less,” Kharasch said. “However, I anticipate that they will continue to go out at the same rate but spend much less by ordering less food, sharing more groceries and switching from a drink and wine with dinner to one or more. ‘other.”

Different segments recover at different rates

It’s important to remember that “the restaurant industry” is a broad generalization with many sub-sectors, and they’re not all recovering at the same rate.

“Specific segments of the restaurant industry rebounded to pre-pandemic levels in model store sales and better-than-expected earnings,” said Robin Gagnon, founder of We sell restaurants, the nation’s largest restaurant brokerage firm. “The fast food or fast food industry has quickly found its footing in a changing environment and hasn’t looked back. They have thrived in the take-out and delivery model, implementing technology and managing the rising cost of food with menu price offsets and better controls.

Other restaurant segments are seeing a slower return to normal, particularly the full-service model.

“These dining-experience restaurants are hampered by greater staffing needs, customers who still don’t return in force, and a slower adoption of a take-out model where a social event is the reason for the meal,” said Gagnon. “They also generally have larger portions of protein – think steakhouses for example – and the inflationary pressure on beef and chicken costs has affected them more significantly.”

So what’s a restaurant to do?

Restaurants have passed on rising costs to their customers, but there’s only so much someone will pay for a pizza, a plate of spaghetti or a steak. At some point, restaurants will have to cut costs instead of handing them over to their customers.

“Inflation has made people very conscious of rising costs and they are increasingly cautious about how and where they spend their money,” said Bob Vergidis, visionary director of pointofsale.cloud. “Businesses should be extremely strategic during this time. Reduce the total cost to the consumer by reducing costs as much as possible. This may involve a menu redesign, but also making the ordering channel cheaper for customers. Restaurants should consider the cost of third-party technology and services, as they can contribute up to 25% of the final cost to the consumer. »

He added: “To alleviate some of the challenges that inflation poses, restaurants can turn to technology that can enable them to process their own mobile ordering and pick-up services. Solutions like these are twofold as they reduce the costs associated with third party delivery services for the customer and the restaurant and make the customer happy by giving them what they want.

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Cecil N. Messick