NY AFTERSHOCKS IN THE DJOURNEY
into bankruptcy and rewriting investors’ val - uation of the business. It also created all kinds of new tension. There are frustrations over menu prices, and conflicts between what the industry has be - come over these five years, and what people think restaurants should be. AFTERSHOCKS The World Health Organization declared COVID-19 to be a pandemic on March 11, 2020. It officially ended on May 5, 2023, more than three years later. But the biggest impact on the restaurant industry was for a few months in the spring and summer of 2020 when restrictions on dine-in service were their tightest. Some restrictions would return with later COVID spikes, but the four months following March 2020 were the worst. The restaurant industry generated $69 billion in sales in February 2020, according to federal data. By April it was down to $31 billion, a 54% decline. And 48% of the nearly 13 million restaurant employees were out of a job. Independents were hurt the most. Sales recovered more quickly than many people imagined they would, however. By May 2021, industry sales topped pre-pan- demic sales numbers on a pure dollar stand- point for the first time. These days, Americans spend more on food at restaurants, both in dollar numbers and as a percentage of their food spending, than they ever have. In 2019, consumers spent 50% of their food dollar at restaurants. By last year it was 53%. It’s not just restaurant pricing. Restaurant prices are up 30% since January 2020, accord- ing to federal data. But that is just 210 basis points more than grocery inflation over the same period. Even if we factor that out, con -
RESTAURANT SALES AS A PERCENT OF FOOD SPENDING Consumers now spend more of their food dollar at restaurants than they did before the pandemic.
sumers are still spending more of their food dollar at restaurants right now. Yet in determining how the industry has changed over these past five years, it’s worth viewing the pandemic for what it was on the business: An earthquake, followed by a series of aftershocks. As dine-in service returned, a false recov - ery of sorts emerged as sales took off at many chains. But people didn’t return to work as quickly, leading to a global labor shortage that drove up the cost of labor and also food costs. That hurt profit margins. But it also led the Federal Reserve to increase interest rates, which damaged industry valuations. Aggressive menu price increases to offset higher labor costs—which would continue to increase long after food cost inflation subsid - ed—would ultimately frustrate consumers. By
the end of 2023 traffic declines would become commonplace. Those declines have continued into early 2025. THE INDUSTRY ADAPTS All that has had an impact on the way oper- ators do business. Supply chain challenges, for instance, forced operators to think more intently about the sources of their products. And it’s not uncommon these days to see c-level supply chain executives. “Restaurant operators learned to be much more nimble with their supply chain,” said James Walker, CEO of the online ordering company Lunch- box. Operators pushing to get more workers into their restaurants increased pay and ben- efits, especially for general managers. That’s worked to lower turnover below 2019 levels.
APRIL 2025 RESTAURANT BUSINESS
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