Bottom Line Impact of Rising Costs for Restaurants
Broad-based cost increases are having a significant impact on profitability. 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. This leaves a pre-tax profit margin of roughly 5% for a typical restaurant, which means significant cost increases are not sustainable for most restaurants. This analysis illustrates the impact that the current elevated cost environment is having on the bottom line of a typical restaurant. Soaring costs across all parts of the business. Costs rose sharply across all parts of the restaurant operation during the last several months. In a National Restaurant Association survey of 4,200 restaurants fielded between July 14 and August 5, a strong majority of operators say their costs are higher now than they were in 2019.
Restaurant Operators’ Economic Pessimism Grows
NJRHA survey finds economy is disrupting service across the industry. Soaring costs of food and utilities, coupled with an ongoing hiring crisis, are among the key issues impacting the state’s restaurant industry, which is still recovering from shutdowns and guest capacity limitations during the COVID-19 pandemic, according to a new survey released by the New Jersey Restaurant and Hospitality Association (NJRHA). These challenges, among others, are why 54% of New Jersey restaurant operators say business conditions are worse now than they were three months ago. This finding follows a June National Restaurant Association survey in which 43% of operators across the country said they think conditions will worsen in the next six months, which was the highest level of pessimism since 2008. NJRHA President Dana Lancellotti said despite the economy’s impact on the industry as a whole, operators are still providing the best service possible to their patrons. “Restaurant operators are masters at balancing adaptation and innovation to provide amazing service for their customers,” said Lancellotti. “While operators are more pessimistic about the economy, they aren’t letting that get in the way of serving great food, providing exceptional service, and creating a memorable experience.”
N.J. to Allow Alcohol Deliveries
To your doorstep. How about a beer to go with that sandwich? Or a bottle of wine delivered with the pizza? Or maybe a bottle of Scotch delivered to your doorstep? Get ready to hit the speed dial. The state Division of Alcoholic Beverage Control (ABC) on Friday adopted a special rule to allow bars, restaurants, and liquor stores in New Jersey to use third-party delivery services and bring booze right to the doorstep beginning this fall. The rule creates the Third-Party Delivery Permit, which will allow liquor-serving establishments to contract with services like Door Dash, Instacart and Amazon Flex. Driver delivery services, which exploded during the pandemic, are now entering the highly regulated business of alcohol distribution. “This is a game changer for New Jersey’s alcoholic beverage industry and a tremendous opportunity for growth,” ABC director James B. Graziano said. “We’ve worked diligently to craft a permit that serves as an economic stimulus for the industry while maintaining the integrity of New Jersey’s robust liquor laws. The Third-Party Delivery Permit includes appropriate safeguards to ensure orderly, controlled, verifiable and accountable deliveries of alcoholic beverages.”
DoorDash Facilitated $25B in Sales for Restaurants
In 2021. DoorDash facilitated more than $25 billion in sales for its marketplace merchant partners in 2021, showcasing the continued growth of delivery during the pandemic. The company also found that it supported $68.9 million in U.S. GDP through its platform, which is a larger economic value than seven U.S. states. The third-party delivery aggregator shared the data as part of its 2022 Economic Impact Report, which was conducted in partnership with Oxford Economics. In a survey of 736 independent merchants, 61 percent prefer DoorDash to their own delivery fleet. The same number agree that third-party platforms are good for the restaurant industry. Fifty-one percent say revenue growth would be lower without DoorDash, and 58 percent say overall revenue wouldn’t be as high. Seventy-one percent would recommend the company’s services to someone that wanted to increase sales. The platform fulfilled 1.39 billion consumers orders across the world last year. From a survey of roughly 2,800 customers, 25 percent have an annual household income of fewer than $50,000, and 43 percent are people of color. Globally, the average customer placed more than four orders in December 2021.
Restaurants Send More Customer Calls to Voice Bots
Amid staffing shortages. More casual-dining restaurants and takeout joints are dispensing with direct phone lines, opting instead to divert customer calls to voice bots. Pushing customers who call in orders and reservations to automated lines run on artificial intelligence can help staff focus on cooking and serving, some restaurant executives say. That is particularly helpful in a time when 65% of restaurant operators say they don’t have enough employees to support customer demand, according to a survey conducted by the National Restaurant Association between July 14 and Aug. 5. Outsourcing calls to artificial intelligence may have other benefits, as well. Bots, the executives say, always stick to the upselling script, let multiple customers place orders at the same time, and use systems that make it easier for companies to store and analyze customer data than the phone, pen and paper-ledger method. Another bonus, according to some backers: Bots are more likely to deliver service with an aural smile. “If you call up in the middle of a Friday night rush, all the training in the world isn’t going to put that person who answers the phone in a calm state,” said Aaron Nilsson, the chief information officer of Jet’s America Inc., which does business as Jet’s Pizza and is testing an AI phone bot. “That computer voice never waivers.”
How Gift Cards Can Help Restaurants Cope
With inflation. Restaurants are grappling with labor shortages, supply chain disruptions and inflation. According to the National Restaurant Association, restaurants are experiencing the most severe labor shortage in history, actually 70 percent higher than most industries. As of April 2022, restaurants were still down 794,000 jobs – or 6.4 percent pre-pandemic employment levels. Additionally, employee retention is an ongoing issue for restaurants indicated by the quit rate which has grown from 4.8 to nearly seven percent in just one year. Inflation is also causing direct strain on the economy, impacting all decisions made in restaurants: choice of menu items, cost vs profit of each menu item, service hours, number of employees per shift, etc. Many restaurants have increased the price of certain menu items and continue to do so, unfortunately losing customers in the process. As a result, 80% of U.S. consumers are dining out less often. This leaves operators in a sticky spot, and many fear they won’t be able to remain in business if costs don’t decrease.
Can Technology Reduce Stress for Restaurants?
Technology has become the norm for most industries across the globe. Between the Covid pandemic, labor shortages and a struggling food supply chain, it’s no wonder that restaurants are feeling the heat. Finding ways to reduce stress on your business and staff is necessary to survive and succeed. Technology can provide the tools to make managing day-to-day logistics easier. Technology has become the norm for most industries across the globe, and even the more-traditional food industry is embracing some high-tech solutions. Stay on top of technology trends to tap into where digitization can help staff save time and energy, what’s popular with customers and what your competitors may already have in place. Shortages of products and people have been a problem since the start of the pandemic, but the situation has become more dire this year. International conflict has crippled the supply chain with a lack of crucial products like wheat and oil, and rising energy prices have made transportation costly. Staffing shortages that started during the pandemic have continued to be a looming problem for the industry.
Restaurants’ New Normal
Fewer cashiers, chefs and wait staff. Whether they are selling burgers, pizza or pancakes, major U.S. restaurant chains are short-staffed – and they expect to stay that way. To get by with their existing workforce, they have cut hours and streamlined operations. Staffing at IHOP and at Applebee’s Grill + Bar chains, both owned by Dine Brands Global (DIN.N), is currently at about 90% of 2019 levels – the status quo for at least the past four quarters, Chief Executive Officer John Peyton told Reuters, calling it “the new normal.” IHOP, known for its 24/7 service, is shortening hours at about 400 locations, or almost a quarter of its U.S. restaurants, because they lack overnight shift workers, Peyton said. Restaurants are now facing the grim reality that they are coming out of the COVID-19 pandemic with fewer workers for the long haul, as many had to slash staffing in the early days of lockdowns. Now they are putting employees where they are needed most, using technology to plug gaps and adapting to post-pandemic consumer habits that favor kiosks, delivery and drive-thrus over cashiers at registers.
Did You Know?
Event trends for 2022. People booking events this year prefer to party on Saturdays, and the celebrations are focused on social occasions, according to new data from EventUp powered by Tripleseat. Highlights of the EventUp 2022 First Half of the Year Event Trends include:
- The average spend for events is $3,545
- Top celebrations include birthday parties and baby showers
- Saturday is still the most popular day to party
- The average event size is 130 guests
“We are seeing an uptick not only in event size but also the amount planners are willing to invest in executing a perfect celebration,” said Jonathan Morse, CEO of Tripleseat. “By looking at the trends both locally and globally, we are able to better understand, and support planners’ needs in order to connect them with the perfect venue.”.
For wage-sensitive job hunters, $20 is the new $15. Forget $15 or $18 an hour. Just to merit job hunters’ attention, restaurants and other employers need to sweeten their advertised starting wage to $20, according to a new study. An analysis by the job-posting site Indeed revealed that potential new hires are far more likely to search for a position paying at least $20 an hour than they are for one offering a wage of $15. As of Aug. 14, the number of searches for a $20 wage had increased 35.6% from the 2021 level, while searches for positions starting at $15 an hour had declined by 57.3%.
Bielat Santore & Company – Restaurant Industry Alert
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