Bank of America’s recent State of the Restaurant Industry report pinpointed a major shift in how restaurants are operating – and where challenges exist in light of both the Covid-19 pandemic and inflation. “We have a new cost structure and paradigm where 85 percent of sales go through a window,” says Ted Lynch, senior relationship manager for the bank. “In the past, the dining room was the bottleneck,” added Roger Matthews, vice chairman of investment banking for Bank of America Securities. “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.”
The potential of the restaurant kitchen as a growth engine makes it an area especially ripe for investment this year. That could mean using restaurant kitchen space in new ways, such as by sharing real estate – and expenses – with other operators. Or maybe you’re investing in a new technology to make your kitchen operations more efficient, such as a kitchen display system that brings greater efficiency to your management of growing sales streams and new staff.
Such changes may give restaurants more room to absorb ongoing food inflation (not to mention labor inflation, which isn’t levelling off anytime soon). As of this writing, overall inflation appeared to be on a downward pitch, if still much higher in absolute terms than it had been in 2020. But food inflation still faces some obstacles to easing. In addition to the crop disruptions caused by extreme weather, the war in Ukraine continues to impact current crop distribution, future planting and the supply of animal feeds and fertilizers to support a range of livestock and crops.
As for labor, Matthews feels the current cost structure is permanent as other major employers competing for restaurant staff move to a $15 wage. But here, too, greater efficiency in the kitchen may at least partially offset needed wage increases by minimizing the need for paying overtime.
More Financial Matters