There is no doubt that 2020 was the most challenging year in the history of the restaurant industry. By contrast, 2021 has been a year of transition and rebuilding. In the first six months, restaurant sales were boosted by rising vaccination numbers, healthy household balance sheets and consumers’ pent-up desire to socialize and dine out.
But as we know it hasn’t been all sunshine and roses. Despite gains in restaurant sales in recent months, many restaurant operators took on significant debt during the past 18 months. In addition, there is a labor crisis and the COVID-19 delta variant threaten to derail recovery.
To getting a better understand of how the industry is coping, the National Restaurant Association (NRA) recently released its mid-year supplement. The report, a special mid-year refresh of the association’s annual State of the Restaurant Industry Report, provides a snapshot of the industry as of the end of the second quarter and forecasts what businesses can expect as we edge closer to 2022.
Restaurant Sales Rev Up
The restaurant industry has had to overcome numerous challenges over the past year and a half as a result of the ongoing pandemic. But as the saying goes, after hitting rock bottom, there’s only one way left to go and that’s up – and figures included in the report seem to reflect this. Thanks to Covid fatigue, consumer’s pent-up desire to return to restaurants and socialize led to increased sales in the first half of the year. Food and beverage sales are projected to reach $789 billion in 2021, up almost 20% from 2020. The data suggests the ongoing rebound will be particularly dramatic for full-service restaurants, a group that suffered a 30% freefall in collective sales last year. The association expects that sector to surpass last year’s watermark by 27.8%, with total sales of $255 billion, or just $30 billion below where it was in 2019. While limited-service restaurants are also projected to shoot pass their 2019 sales tally by $30.1 billion this year, to $339 billion, for a two-year gain of 9.7%.
Ongoing challenges a threat recovery
While sales numbers seem like they are heading in the right direction, the industry still faces a number of challenges – namely the ongoing labor squeeze and more recently, increased customer hesitancy around the delta variant.
When it comes to staffing, the figures would seem promising. In the first seven months of 2021, eating and drinking places added a net 1.3M jobs – with July marking the 7th consecutive month of staffing growth. However, it’s still not enough. In June and July, 75% of operators said recruiting and retaining employees was the top challenge facing their business. At the end of the second quarter, employment was still 8% below pre-pandemic level and for full-service it was even lower, sitting at 11%.
Consequently, as demand keeps growing, it’s now become more and more common for restaurants to reducing their operating hours or asking existing staff to work more hours and cover multiple positions.
While labor continues to be an ongoing issue, it is a known problem. As such, possible work arounds and solutions continue to be put in place to alleviate the issue while the industry works back towards normalcy. The Delta variant on the other hand has injected uncertainty back into the industry’s situation mid recovery. Research generated in the third quarter and included in the report shows that the current surge in COVID cases, threatens to reverse the gains made in the first six months of the year. Some of the study’s discoveries about consumer habits in response to the delta variant include:
- Six in 10 adults changed their restaurant use due to the rise in the delta variant
- 19 percent of adults said they completely stopped going out to restaurants
- 37 percent of adults said they ordered delivery or takeout instead of dining in a restaurant
- 32 percent of adults said that if asked to wear a mask and/or show proof of vaccination to dine indoors again, they would be less likely to dine in a restaurant
If that wasn’t enough to contend with, the increase in wholesale food costs are adding to the stress of recovery. The report found that costs are increasing at their fastest rate in 7 years with the Producer Price Index for All Foods (the change in average prices paid to domestic producers for their output) on pace to post its largest annual increase since 2014. Everything and anything from fats and oils, to beef, eggs and flour are all posting increases since the start of the year. In addition, Gas and diesel fuel prices have also increased and are expected to hit their highest annual level since 2014. Of course, to offset these increases they need to be absorbed somewhere. Menu prices are an obvious starting point, and not surprisingly restaurants across the country have registered their strongest annual increase since 2008, citing higher input costs as the key driver. By the end of June, menu prices were up 3.9% on a year-to-date basis.
Commenting on the report, Hudson Riehle, Senior Vice President of Research for the National Restaurant Association said, “The trends from the first half of the year are promising, but a lot of uncertainty remains in regard to the Delta variant, consumer confidence, and ongoing labor challenges. We expect restaurant pent-up demand will remain high in the coming months. However, in this state of flux, maintaining the availability of on-site dining with few capacity restrictions will be critical to keeping the overall sale momentum going forwards, especially for full-service operators.”
The Association will continue to monitor the effect of COVID-19 on the restaurant industry in the coming months and plans a full State of the Restaurant Industry Report early in 2022.