04272017

The State of the Restaurant Industry: Facing Challenges, Embracing Opportunity

Understanding the industry

The National Restaurant Association (NRA) projected industry sales to be over $782 billion for 2016. This breaks down into commercial sales ($720.4 billion), non-commercial sales ($59.6 billion), and military restaurant services ($2.6 billion).

And while that might sound like a large number, consider that the average total bill per transaction is just $36.30. The takeaway is that the restaurant business is a fractured one made up of millions of customer transactions. Taken another way, it’s millions of opportunities to build a loyal following or, alternately, alienate your customers.

As a restaurant owner, you already know that cultivating a loyal customer base is only one of the things you need to do to make your restaurant a success. You also need to navigate myriad industry challenges as well. Here’s a look at what else you’re likely facing:

Price pressure

Americans are cutting back when it comes to dining out, said Molly Harnischfeger, a director in the restaurant and foods services practice at consulting firm Alix Partners LLP. In a recent survey commissioned by the firm, only 15 percent of Americans said they will dine out more often than they did in the previous 12 months. This was the lowest average of the nine countries surveyed.

“Meanwhile, the survey results for just the U.S. show Americans estimating that [their] visits to fast-food establishments for any type of meal will fall 13 [percent] in the next 12 months,” Harnischfeger said.

At the same time, those who are dining out are paying more attention to price. AlixPartners‘ global consumer survey found that 44 percent of those surveyed said overall price is the most important factor they consider when selecting which restaurant they will visit.

While customers are increasingly concerned about price, they also expect more for less. In particular, customers are increasingly demanding healthier and more sustainable food.

That trend adds up to higher costs for restaurants.

“Striking the right balance can be a very tricky equation,” said chef, restaurant owner and founder of RD Culinary Consulting LLC, Ryan DePersio.

“Food cost and employee costs [should be] under 30 percent. Some restaurants even try to keep employee costs under 25 percent. Once you go over these percentages, you’re losing good profits,” DePersio said.

Staffing

Finding staff is also proving challenging. The National Restaurant Association projected that by the end of 2016, the restaurant industry would employ 14.4 million people. While the industry is expected to add 1.7 million jobs over the next decade, there are concerns when it comes to immigrant workers, which make up a large part of the industry’s workforce.

“If the flow of immigrants slows down dramatically, we risk a major shortage in staff,” said Jose Meirelles, owner of Le Marais Kosher Steakhouse in New York City.

While finding employees is one challenge, restaurants in many cities are facing growing pressure to increase the minimum wage they pay employees.

The new $15 minimum wage is a big financial challenge his restaurant will face in 2017, Meirelles said. To make up for these additional costs and the already thin profit margins, he suggested finding ways to cut costs without sacrificing food quality or service.

“Try to find ways to improve income by looking for other avenues like delivery, special events and promotions that allow [you] to maximize the down times,” he said. Meirelles also advised restaurant owners to add other activities that bring people in on slower days or during less-busy times, which can offset the rising costs of owning a restaurant.

Technology

Technology, too, is creating all sorts of new challenges for restaurants. Whether it’s reserving a table via mobile phone or paying one’s bill with an iPad, restaurants are constantly having to meet customers’ increasing demands for technology that improves their dining experience.

In fact, 39 percent of smartphone users said they would pay restaurant and bar tabs via a smartphone app if it’s offered, according to the National Restaurant Association. A Zagat survey found that 52 percent of avid diners said they make restaurant reservations online.

These are just a few of the challenges your restaurant will face in the coming year. We’re here to make it all a little easier. In the coming weeks [or months], Business.com will launch a series of articles with resources to help restaurant owners face the challenges head on to successfully navigate this turbulent economy.

Article written by Jennifer Post. Image courtesy of Monkey Business Images/Shutterstock.

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