Bright spots in the year ahead
As the number of restaurants continues to fall behind pre-pandemic levels, U.S. restaurants per capita are at their lowest point in 25 years. According to Nick Cole, head of restaurant and hospitality finance at Mitsubishi UFJ Financial Group, this imbalance between supply and demand is a positive sign for restaurant chains – even if demand were to soften this year. While the high costs of lending and construction (not to mention labor and supplies) are likely to dampen new restaurant development, the fewer restaurant options available mean operators are more likely able to pass mounting costs on to guests without sacrificing sales. That’s as long as they can offer strong perceived value for check totals. In fact, the National Restaurant Association reports a modest but steady increase in restaurant sales in the final months of 2022 due to available savings and the increased use of credit cards. (This increase in spending did not spread into non-restaurant retail purchases, which dipped at the end of the year.)
Fortunately, operators should have some wiggle room on price this year if industry analysis proves correct. Paul Westra, managing director of restaurants investment research at Capital One, said late last year that average menu price hikes have hovered around 6 percent over the last 18 months, but restaurants need to aim for 11 percent increases to protect profits. If inflation continues to relax this year and in the next few years, as is widely predicted, that could ease some of the pricing pressure operators have been facing.
It also helps that the supply chain disruptions that have contributed to inflation are showing signs of normalizing – or at least settling into a more manageable pattern. Morningstar reports that the New York Fed’s Global Supply Chain Pressure Index, which hit extreme highs in late 2021, has been dropping steadily since the middle of last year. This indicates that demand is steadying and supply is catching up – a healing sign for supply chains (and for chefs who have repeatedly been forced to quickly change course on menu offerings in the past few years).
Fortunately, operators should have some wiggle room on price this year if industry analysis proves correct. Paul Westra, managing director of restaurants investment research at Capital One, said late last year that average menu price hikes have hovered around 6 percent over the last 18 months, but restaurants need to aim for 11 percent increases to protect profits. If inflation continues to relax this year and in the next few years, as is widely predicted, that could ease some of the pricing pressure operators have been facing.
It also helps that the supply chain disruptions that have contributed to inflation are showing signs of normalizing – or at least settling into a more manageable pattern. Morningstar reports that the New York Fed’s Global Supply Chain Pressure Index, which hit extreme highs in late 2021, has been dropping steadily since the middle of last year. This indicates that demand is steadying and supply is catching up – a healing sign for supply chains (and for chefs who have repeatedly been forced to quickly change course on menu offerings in the past few years).