As restaurants recover from the pandemic, labor shortages and commodity prices are painful, but things are looking up.
As we push through the second half of 2021, the restaurant industry is continuing to recover from the COVID-19 crisis. Nevertheless, challenges remain. Recently, we talked with Hudson Riehle, the National Restaurant Association’s senior vice president of Research & Knowledge, who provided insight on what the recovery will look like going forward.
The restaurant industry is finally recovering after nearly a year and a half of losses during COVID-19. Where do things stand right now?
The industry continues to improve, but 2021 is definitely a year of transition. According to the Association’s weekly tracking survey, on-premises restaurant dining is gathering momentum as restrictions end. With regard to restaurant sales, May was the first month in which the monthly total exceeded pre-pandemic levels. However, the important caveat there is it’s still at least 3% below where it should be when you take menu price inflation into account.
What does that mean for businesses in the months ahead?
Typically, people say all restaurant sales are local, and sales patterns definitely vary dramatically by region, state and even metropolitan areas within a state. But the overall trend line for on-premises dining is moving upward and will continue if the pandemic remains under control.
What does labor look like in the second half of the year?
The labor shortage continues to plague the industry, and we don’t see industry employment returning to full strength until well into 2022. When talking to operators, they say the inability to recruit adequate staff limits their ability to expand business.
Our tracking survey found that 75% of them—3 out of 4 operators—claim recruitment is their hardest challenge. In terms of the job numbers returning to pre-pandemic levels, latest figures from the Bureau of Labor Statistics indicate the industry added 194,000 jobs in June, which good, but still 1.3 million below what it was before the pandemic. In many cases, restaurants have had to limit their operating hours while increasing the work hours of existing staff members.
How does technology fit into all of this?
The way labor is used at restaurants is definitely changing, largely because of the increase in technology integration. Association data shows that operators have allocated more resources toward investing in technology, and this is the continuation of a long-term trend, not a fad. The integration is in three areas: front of the house, back of the house, and smartphones. Depending on the consumer restaurant occasion, technology acts as a productivity and efficiency enhancer. Looking at the history of productivity in the restaurant industry, pre-pandemic annual sales per employee averaged just over $60,000. When technology is applied against a very labor-intensive industry, productivity and efficiency gains can result. That’s why the operator community is allocating more resources to this arena, especially in this environment where staffing challenges are so severe.
How popular is off-premises dining now?
It’s definitely not dropping back to pre-pandemic levels. Before the pandemic, off-premises represented just over 60% of traffic, but at its height, it was at 90%. Currently, it’s in the low-80% range. That number will likely pull back, but it’s unlikely to ever get as low as it was before the pandemic. That’s mainly due to American consumers becoming much savvier and more comfortable with digital ordering.
Is digital ordering still preferred among consumers?
Looking at pre-pandemic restaurant orders, roughly one out of 20, or around 5%, was digital, but now that number is running close to one out of five, or around 20%. That’s a big shift in a relatively short period of time. The consumer has gotten used to, and now has expectations regarding digital ordering and payment, and that isn’t likely to diminish.
What about alcohol-to-go sales?
It’s been a lifeline, particularly for table service operators. Alcohol-to-go also represents the biggest change to alcohol laws in this country since Prohibition. From the consumer’s standpoint, Association research shows there’s strong support for alcoholic beverages being delivered alongside restaurant meals.
What can operators do to combat the challenges they currently face?
To preserve margins, managing procurement and labor costs is paramount. New growth will also be aided by virtual and ghost kitchens as well as a greater emphasis on off-premises dining and stepped up recruiting, marketing and promotion activities. Entirely different business models for the industry are evolving where the physical footprint is smaller and there’s no public access, but it’s a natural evolutionary step. The industry remains extremely competitive, and the typical restaurant operation needs to remain top-of-mind when the consumer is seeking a meal or snack solution.
What are the most positive signs of recovery?
The most positive sign is that consumers are again embracing on-premises dining. There’s no doubt stimulus money played a role in allowing them to do so, but the effects of it are already waning.
There’s no substitute for national employment growth. When people are employed, there’s less time for home-meal preparation and more disposable income to spend at restaurants. National employment is still down 6.8 million jobs, so there’s a way to go, but short of any additional major externalities, the industry will recover.
As the economy continues to improve and more people re-enter the workforce, restaurants are already nearly capturing the majority of food spending in America. Pre-pandemic it was 51%, but that dropped to the upper-30% range at the height of the pandemic, and now it’s roughly a 50-50 split.
That ratio should continue to move up as the months tick by. Convenience and pent-up demand for socialization will drive that increase in sales.