Inflation is taking a toll on consumers and a recent dip in restaurant traffic firmly suggests as much.
Restaurant operators are starting to feel the pinch as well, and 72% of small restaurant owners worry inflation could force them to close in the next six months, according to Alignable data.
“I’ve not seen anything like this. It’s a new experience for all operators. We’ve weathered through many recessions over time and have had to scale back based on consumers not coming through the door. But this is different. The problem now is the supply chain. Rising costs, not enough supply and too much demand–all of this leads back to a supply chain problem,” said Christina Davie Donahue, president and chief revenue officer of Buyers Edge Platform. She has 17 years of experience in the industry and has a unique perspective as her company works with over 60,000 restaurant operators as a supply chain, contracting and purchasing partner.
In this “new experience,” operators have had to get creative (beyond just raising menu prices) to navigate a tricky food inflationary environment. Many have done just that.
Several restaurant chains have trimmed their menus to focus on their core items, while others are deploying automation to help with food prep (White Castle, Chipotle, Jack in the Box
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There has also been a significant uptick in restaurants using pre-made foods. Buyers Edge Platform looked at more than $10 billion in restaurant purchases in the last six months and found that less labor-intensive food items are gaining in popularity. For instance, orders for frozen premade soups and soup bases are up nearly 55%; orders for frozen appetizers are up by nearly 32%; and orders for premade beverage bar mixers are up nearly 33%. Donahue said this trend spans the industry–independents to chains, quick-service to fine dining.
“Scratch cooking is something we admire and many operators aspire to, but that takes a lot of people. What we’re seeing right now is a transformation to less human beings available to do the work. Operators are being forced to be creative while creating the same experience for customers that they had before the pandemic,” she said.
Indeed, the restaurant industry is functioning in a high-demand, lower-labor environment right now and an all-time-high quit rate among these workers suggests it could be a long-term challenge. According to the most recent data from the Bureau of Labor Statistics, there are about 1.5 million positions open in the hospitality industry.
Meanwhile, sales are up across most of the industry as consumers long for meals made by professionals and experiences outside of their homes. This macro-level equation is tough to reconcile and makes shiny new solutions like Rita, Chili’s robot server, pretty appealing.
Notably, such creativity isn’t necessarily new on the supply chain side.
“Manufacturers have been creating pre-made food for many years and trying to offer those alternatives, but it wasn’t a necessity for operators to take advantage of that. Produce vendors have been chopping vegetables for years, but operators were choosing to hire the labor,” Donahue said. “Now, they don’t have that choice. It’s a forced need for them.”
She adds that she thinks this trend could stick even if food costs and the labor supply correct themselves.
“There are dishes core to restaurants that they’ll have to mess with, but operators have to start looking at things more realistically. It’s not compromising–pre-made items are good products that are highly regulated and well thought out–but creating,” Donahue said.
That said, there could be a light at the end of this long and dark tunnel. Donahue said we’re starting to see some relief on the supply chain side and predicts things will end within the next two years.
We seem to be on the early side of that prediction. For instance, during his company’s most recent Q1 earnings call earlier this month, Wingstop CFO Alex Kaleida noted that food costs are currently 800 basis points lower than their peak in 2021. Chipotle’s CFO
After the past two years, we could all use some stability, as well as some optimism.
“We’re experiencing things this generation of restaurant operators have never dealt with, at least not all at the same time. But it all starts with consumer coming back through the door and they are,” Donahue said. “As long as that’s happening, the industry is in a good place.”