2022 hasn’t been the year of turnaround that restaurants had hoped for. Just when restaurateurs thought they’d seen the brunt of the pandemic’s effects and a path to recovery, the industry was once again upended—this time by an intense labor shortage coupled with record inflation. Businesses and consumers alike are feeling the pinch as inflation has driven food costs up by 17 percent YOY, all while the industry’s quit rate has jumped from 4.8 percent to 6.9 percent. Having already been inundated with pandemic-related challenges, restaurants aren’t fully prepared to face this new slew of obstacles.
To provide more insight and restaurant industry statistics, we spoke with industry veteran and renowned journalist, Alicia Kelso. Kelso has covered the restaurant space since 2010 and currently serves as a senior contributor at Forbes.
Branch: How is inflation affecting the industry?
Kelso: How is it not? Inflation has triggered a vicious cycle of pressured margins and hindered traffic and sales. To keep pace with rising operational costs, restaurants have had to hike their menu prices—some are double-digits higher than they were in 2020. Simultaneously, consumers feeling the pinch at home with higher grocery prices, gas prices, energy prices, etc., are cutting their discretionary spending. In doing so, their first target is often restaurants. According to executives on the last round of earnings calls earlier this month and last month, low-income consumers are especially impacted by inflation and are either trading down or cutting out restaurant visits altogether.
The unfortunate truth of this is that the industry was well on its way to recovery from nearly two years of Covid-related restrictions and consumer anxiety about dining out. That recovery has since come to a halt at many establishments as they contend these latest challenges brought on by inflation, labor and supply chain challenges. It’s like the second of a one-two punch.
Branch: What impacts are you seeing from the labor and supply chain disruption?
Kelso: From a macro-perspective, the supply chain disruption seems to be improving versus last year in that products are more available. We’re not seeing nearly as many instances of chains running out of everything from cups to ketchup to roast beef. However, costs of goods remain high as the supply chain continues to correct itself and inflationary pressures linger. It’s a massive industry and that correction will take time—especially considering that the disruption has plagued every facet of the restaurant business, from creating equipment shortages to construction delays.
That said, several overseas markets, such as the United Kingdom, continue to struggle with major supply chain disruptions. My guess is we’ll get closer to normal in 2023, but I caution there are long-term implications brought on by a lingering war in the Ukraine (that affects cooking oil, for example) and global warming causing droughts and flooding that will, unfortunately, continuously disrupt our supply chain.
The restaurant labor shortage remains a deep concern for many, as the industry remains about 600K employees below pre-pandemic numbers. The challenge is compounded by restaurants having higher volumes, both from demand and more channels, like delivery.
Even with an increasing minimum wage, the labor shortage in the industry remains a major issue, forcing operators to cut hours, sometimes days, or trim menus. Not having enough staff will leave money on the table, in other words. One, perhaps, positive implication of this is we’re seeing an influx of technologies into the restaurant space created to ease tactical labor obligations. These include automation to answer calls or make French fries, and streamlining business intelligence duties from both the front and back of the house into one system.
Branch: How has automation affected the restaurant labor shortage?
Kelso: We’re just now starting to see this and I think it’s too early to clearly define automation’s true impact. That said, as mentioned above, automation has hit every piece of the restaurant business, from streamlining orders to the kitchen to delivering meals via sidewalk robot. We’re also starting to see some experimentation with operations that are fully operated, such as Picnic’s Pizza Station.
Because of its potential impact simplifying the business and closing the labor gap, investment money has flowed into the automation sector. Some early examples, however, have been pulled because results have fallen short of expectations. DoorDash, for instance, recently shut down its Chowbotics business, which included Sally, an automated salad-making robot. This sort of hit-or-miss environment illustrates that we’re early days here.
I think once automation is fully refined and perfected, the runway for the restaurant space is huge. It will remove tactical and dangerous tasks, such as working a fry station or replacing the coffee. The potential in the delivery space is particularly big since foodservice delivery has struggled to generate a profit. Automation will trim out most labor costs hindering that path. This will include robot delivery, autonomous vehicle delivery, such as Nuro which is receiving investments from Chipotle, and drone delivery.
Branch: How do you see payments evolving in the restaurant space?
Kelso: I think we have to look at how the younger generations— millennials, Gen Z and younger— prefer to pay to understand where payments will evolve in one of their biggest consumption spaces. Combined, their spending power is significant and will only continue to grow as many of them start to have families. That said, these generations are interesting because they love and are used to on-demand and omnichannel: getting what they want, when they want, and how they want. That includes payments, so [I think] businesses will have to accommodate several payment methods. Their preference, especially in the Covid-19 era, is contactless and I’ve read studies that show a large chunk of millennials won’t even shop at a store if it doesn’t offer contactless payments.
Additionally, digital wallets have grown by 50 percent since 2020, so that’s a focus area. Younger generations have proven to be more open to cryptocurrency, though I think there is more caution here than ever as that market stumbles. And, finally, I predict businesses ramping up their tap-to-phone capabilities, allowing consumers to pay through their phones, similar to a Venmo process. That is what they’re used to and what they’ll increasingly expect.