While some consumers are simply opting to eat at home — or feel they can’t afford to eat out — others will trade down. Senior relationship manager for Bank of America, James Short, says, “In every recession, we’ve seen movement from fine dining to casual restaurants, and casual dining down to quick service restaurants (QSR). For instance, in 2008, in the worst year of the recession, while full service was down seven points, QSR was only down four. But right now, lower-income consumers, because of the increases in rents, groceries and gas, are being pinched worse than others, and just may not have the money to go to the drive-thru. Those brands that have catered to the less affluent consumers may be hit disproportionately worse in the coming months.” And with all of this discussion around topline softening, there is no question that margins are lower for those restaurants that own and operate their stores, as menu price increases have not fully offset overall food inflation.
Despite the challenges, the news isn’t all bad. On the positive side, the industry came out of the pandemic leaner and tougher. Menus are streamlined and operations tighter. The labor situation seems to be stabilizing, and both customers and employers have a new appreciation for restaurant workers. Operators have added myriad options for their customers to order, pay for, pick up and receive meals.
“We have a new cost structure and paradigm where 85% of sales go through a window,” says senior relationship manager for Bank of America, Ted Lynch. Says Matthews, “In the past, the dining room was the bottleneck; now it’s the kitchen, and that usually has higher capacity. Restaurants can do more sales than ever before, and that’s a good thing.”
And O’Hara says, “Although there are some brands that missed the mark, there are some really good operators out there who are doing fine. The brands that are going to continue to benefit are those with really good operations and a simple, craveable menu — an amazing product that people desperately want.”
There is still pent-up demand for eating out. In the most recent National Restaurant Association survey, 46% of adults said they are not eating at restaurants as often as they would like.4
“Medium and long term, I remain extremely optimistic for the sector,” Matthews says. “It’s clear that after having dining out taken away from us during the pandemic, people appreciate restaurants and their workers more than ever. Tipping is up — customers have an appreciation for how hard it is to work at a restaurant."