The last two years certainly impacted the restaurant industry, but the kind of impact depended on the kind of restaurant you were. Many dine-ins closed while some pizza franchises had banner years. But looking forward, all restaurants will be impacted by labor shortages and inflation. There will be no escaping it.

Labor Woes: Worker shortage anticipated to linger into 2023

Currently, 7 out of 10 operators say they do not have enough employees to support customer demand. As such, many restaurants have had to reduce their menu options, available tables and adjust their operating hours (ranging from a shorter working week to early closing times) to help curb the impacts. For some, the labor crunch has led to them shutting down for good.

The shortage is the culmination of a number of factors, most of which can be attributed to the last two years of turmoil in the industry. Due to Covid, restaurant workers left the industry in droves. In November 2021 it was revealed that 1 million of the 4.5 million Americans who quit their jobs were restaurant and hotel workers, a new record for the industry. And, they are unlikely to come back. The industry suffered more than most during the pandemic; businesses faced a series of closures and restrictions making working hours erratic and unreliable. On top of that employees were left to enforce Covid guidelines resulting in increased customer harassment and deflated staff morale. Such challenges meant workers moved elsewhere seeking better working conditions, with higher pay and more consistent schedules.

In addition, the workforce as a whole has permanently shrunk. The unemployment rate is at rock bottom, decreasing to 3.5% in July 2022, the lowest since February 2020. Plus, 2.5 million people retired during the course of the pandemic. All these factors combined make a perfect recipe for labor shrinkage. There are just less people to go around and it’s anticipated not to improve anytime soon. Hudson Riehle, senior vice president of the Research and Knowledge Group at the National Restaurant Association, described the situation as the “new normal” for the restaurant industry. He added “…[given] the extraordinary challenges of the last two years, the industry is unlikely to ever completely return to its pre-pandemic state”.

Inflation: Rising costs hampering industry recovery

Alongside the ongoing labor problems, the industry has also had to deal with inflation. Wholesale food prices are the highest in five decades. According to the National Restaurant Association, on average, wholesale food prices are up more than 17% over the past year. Products that used to cost $11 or $12 a pound have doubled and, in some cases, nearly tripled in price. Companies are paying nearly 50% more for turkeys and 82% more for fresh vegetables and 46% more for cooking oil, among other things. Chicken prices are up 29%.

It comes as no surprise that the pandemic has played a pivotal role in rising inflation rates; Plant shutdowns and worker shortages increased the costs of production and transportation of wholesale products. Due to the labor shortages, in order to attract and retain employees labor costs are up 15% in 2022 compared to the year before. On top a pandemic, the war in the Ukraine has driven up costs further, particularly for certain commodities such as wheat and oil. Moreover, Russia’s invasion set off a dramatic rise in energy prices globally. So far in 2022, US gas prices jumped nearly 50 percent year-over-year, driving up energy prices 34.6 percent. Increased prices are having an affect off premises too with owners forced to pay their delivery drivers more for gas! In short, inflation has increased the cost of doing business – but not only for restaurants, for the customer too.

Thanks to inflation, it is now more expensive to eat out. It is true that fast casual eateries typically benefit from some anti-cyclicality due to their low attractive prices but declining affordability may reverse this trend. Dining is becoming an increasingly expensive habit that many are unlikely to sustain. With declines in consumer stability – falling real wages, savings, credit card growth, customers today simply have less money to spend on eat out including drive through and delivery. There is less discretionary spend available which will drive many to adjust their eating preferences. McDonald’s, the largest U.S. restaurant chain by sales, often seen as a bellwether for the industry, can testify to that. CEO Chris Kempczinski said in early May that they low-income consumers have already started ordering cheaper items or shrinking the size of their orders.

On the back of a pandemic, there is no doubt that rising prices are hampering the restaurant industry’s recovery – the cumulative effect of which is represented in lower profit margins. Unfortunately, with the current supply chain issues and rising inflation, restaurant owners will be navigating around this particular challenge for quite some time.

State of the plate: Technology innovations are a necessity for survival

Both the current inflationary environment and pandemic-caused labor shortages aren’t expected to ease anytime soon. In addition, the economy maybe be headed for a potential recession. The next 12 months will certainly be challenging and further increase competition to the industry. Savvy restaurant operators need to be extremely strategic during this time.

To mitigate some of the struggles, restaurants should look to technology solutions to help reduce costs and streamline operations. Technology became a crucial answer in addressing issues restaurants faced during the pandemic – the tech-savviest operators shifted their menu online and increased delivery, which allowed them to stay open. The same adaptability around inflation, supply chain, and labor issues will be key to rebuilding the restaurant industry.