Recent Carnage Of The Restaurant Industry
Published By
Mike Sorrentino
Published On
July 2024
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Intro
According to the Department of Labor, food eaten out has gone up 30% in January 2024 since January 2019.
Current Issues Facing Restaurants
Higher min wage is a big factor. If sales are stagnant or worse in decline adding additional labor will certainly increase costs. However, dramatically increasing the minimum wage will have catastrophic consequences. This past April California has increased the minimum wage per hour to $20 from $16 for fast-food workers. California also has the most closures of fast food restaurants in the US. Coincidence? But California is not alone New York City which also has a high minimum wage is the top city for fast food restaurants closures. If higher labor is not enough food prices are increasing as well. Between inflation and supply chain issues the price of food has risen across the board. Add to that rising rent; it appears the commercial reseste market is recovering faster than the food and beverage industry causing increases in rents across the country.
2023 and 2024 Closures:
To highlight a few: TGI Fridays closed 36, Applebee’s plans to close 25-35 more in 2024 after 33 were shuttered in 2023. Denny’s closed 57 in 2023 and 10-20 more are planned for 2024. Red Lobster 93 and counting. But much of Red Lobster's issues are around some self destructive actions. Bloomin brands had 41 combined closures between Carrabba’s Italian Grill, Bonefish Grill, Flemings, and Outback Steakhouse. Hardee’s had 39 in 2023. Hooters unexpectedly closed 40 restaurants recently. Perhaps the most horrific one is Boston Market which went from 300 locations to around 30.
According to a report by TouchBistro 45% of Americans say menu price hikes impact their ordering decisions in a restaurant.
How Are Restaurants Battling Back
Top California burger joint In-N-Out hike prices due to the states minimum wage increase. McDonalds has also raised their prices, giving them revenue growth of 5% in Q1 of 2024 . But is that sustainable for everyone? McDonalds has already received blow back from high priced Big Macs. Some are turning more and more to automation and technology to mitigate the high labor cost. The use of kiosks instead of cashiers or robots to complete repetitive tasks in the BOH. In states where the minimum wage is so high the barrier costs of technology are eroding away. Unfortunately some sites have resorted to laying off employees. Another sad result is shrinkflation, where less is added to each plate to cut cost. A few fries here and an ounce of rice less there…pennys count!
The National Restaurant Association estimates a 30% failure rate, 1 in 3 restaurants will not make it past their first year.
It's not all gloom and doom
Chipotle Mexican Grill has opened 47 New restaurants in Q1 Of 2024. LongHorn Steakhouse and Jersey Mikes are seeing increased popularity. Popeyes Louisiana Kitchen usurped KFC to become 2nd most popular chicken chain only behind Chick-fil-A. Olive garden recently added 20 new restaurants. Being part of a chain or large cooperation certainly makes it easier to stay in business. But it is not a silver bullet. Look at Subway, the largest sandwich shop chain, has closed more sites than any other chain recently. At this rate how long will they remain number 1?
Conclusion
In the best of times running a restaurant, bar or retail location is difficult to say the least.! These are NOT the best of times. The closure of restaurants is a complex issue influenced by a variety of economic, social, and operational factors. You have to do your best to control the controllable costs and focus on the bed rocks. If you can keep customers happy and build sales you will be on steady ground.