Heading into winter, headwinds across all parts of restaurant operations are coming together to create a perfect blizzard for operators. Between supply chain challenges, consequent food price increases, labor difficulties, and the emergence of the omicron variant, restaurants will need to work hard to maintain their customers.
The food shortages and price increases have become so pronounced that on Monday (Nov. 29), President Biden included four supermarket executives — those of Walmart, Kroger, Food Lion and Todos Supermarket — in the 10 attendees of a meeting to discuss supply chain challenges. Also on Monday, the Federal Trade Commission (FTC) announced that it is investigating these challenges, directing retailers and wholesalers to share internal information to help understand the sources of price increases.
Food away from home prices are actually increasing slightly less in response to these challenges than food at home, 5.3% year-over-year increase in October 2021 versus 5.4%, according to the United States Bureau of Labor Statistics (BLS) Consumer Price Index. However, given that preparing food at home is usually more affordable than eating out, price increases can send cost-conscious consumers to the grocery store where they may have otherwise eaten at a restaurant, especially as menu prices creep upward.
Last week (Nov. 23), for instance, Darin Harris, CEO of San Diego, California-based quick service restaurant (QSR) chain Jack in the Box, which has more than 2,200 stores across 21 states and Guam, shared that the company expects menu price increases. At the start of November, Bloomin’ Brands, parent company of Outback Steakhouse among other casual dining chains, announced its first price increase since 2019, predicting commodity costs to increase 10% next year. In late October, McDonald’s CEO Chris Kempczinski said prices had increased around 6% year over year.
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Meanwhile, restaurants face a historically competitive labor market, with fewer people in the workforce even as the rise of digital ordering has increased the amount of food restaurants need to produce and get into the hands of customers. A BLS study found that in September, the most recent month reported, quit rates for the accommodation and food services industry were up 40% year over year, and job opening rates grew more than twofold. Additionally, the bureau’s report on employment and unemployment for October found that there were 11.5 million employees in food services and drinking places, 5% from the same period in 2019.
Now, with the omicron variant stoking contagion concerns once again, restaurant on-premises business is under threat. While outdoor dining has been, in warm months, an effective way for restaurants to retain a portion of on-premises sales in the face of contagion concerns, colder temperatures threaten this palliative measure.
In fact, restaurants with table service stand to lose almost 40% of their sales. Research from PYMNTS’ 2021 Restaurant Readiness Index, created in collaboration with Paytronix, finds that 27% of these restaurants’ sales are coming through their indoor dining businesses, and 12% through on-premises outdoor dining. Even after an enormously difficult couple of years, the challenges are far from over for the restaurant industry.
For more: QSRs’ Lagging Loyalty-Reward Investment Hurts Innovation and Sales
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