Every week we comb through the news to find employment trends affecting the hospitality industry so you don’t have to. This week’s Hospitality in the News topic: restaurant margin pressure vs. economic predictions.
Discussions during Q4 2022 and Q1 2023 have been all about predicting what the economy will look like this year. Many experts believe that the U.S. will experience a recession sometime in 2023, likely towards the second half of the year. What does this mean for the hospitality industry, which has been steadily working to recover from the pandemic? Will restaurants experience margin pressures due to inflation and rising wages?
Through our research, we found that overall, yes, most restaurants are anticipating or already experiencing margin pressure. There’s uncertainty surrounding when a recession would hit the industry, but businesses are preparing now for the possibility of turbulence later in the year. Margin pressures are being caused by factors such as:
- Supply chain issues
- Rising wages
- Labor shortage
Combined these elements make for a tricky economic landscape for owners and operators. But elements like increased menu prices and stable customer volume* help offset the pressure.
*Regarding stable customer volume, the number of customers spending at dining establishments has been consistent; but this year their focus is more on what sort of experience they want whether it’s delivery, dine-out, quick service, etc.
Still, many believe that while restaurants will fall under the breakeven point in 2023, they won’t lose as much money as they potentially could. This is what has caused leaders to prepare for the worst-case scenario and take measures such as:
- Holding off on recruiting due to possible layoffs in the future.*
- Increasing menu prices and/or reducing the menu size.
- Closing on days they were previously open and/or reducing hours.
- Ending partnerships with third-party delivery services.
The restaurant margin pressure has also impacted ghost kitchens which had a huge resurgence during the pandemic. But due to the cost of third-party delivery services, experts believe the ghost kitchen craze will die down and become a thing of the past.
*Important caveat: an equal number of restaurants also report they’re operating below the necessary staff levels due to labor shortages. Of the restaurants that are experiencing labor shortages, many report that it’s putting additional pressure on employees who are working short-handed. In some cases, restaurants reported needing double the staff they have. One option to supplement your current team is to partner with a staffing company that provides temporary staff, like LGC. We can fill in the gaps without making permanent hiring decisions. Contact us to learn more.
Although we can’t predict the future, we can certainly prepare for it. If your restaurant is feeling margin pressure, create a contingency plan so you’re prepared for what 2023 may bring.