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April 18, 2022

5 key business issues restaurants are facing

ARTICLE | April 18, 2022

Authored by RSM US LLP

Evolving consumer preferences and a tight labor market are among the challenges 2022 is serving up.

Restaurant operators have been on a roller coaster since the start of the pandemic. Faced with restrictions, shutdowns, reopenings and then further restrictions, the industry now appears to be adjusting to a new normal. Some restaurants failed, some flourished and most limped along with the help of government programs. Nonetheless, the pain the industry has felt these past two years has created opportunity for survivors as we emerge into a new operating environment. To capitalize on those opportunities, operators have much to consider.

Managing agility

The pandemic tested the flexibility and agility of consumers and operators. Evolving pre-pandemic consumer preferences were disrupted and accelerated. Operators with robust off-premises platforms grew out of necessity and many flourished, while others adapted operations to keep units open.    

As we continue to emerge, many of the buying behaviors developed over the past several months will likely continue. Many on-premises diners forced to off-premises platforms during the pandemic grew accustomed to the convenience of mobile ordering and payment, drive-throughs, and curbside pickup, and operators who previously resisted off-premises concepts learned they could produce a quality off-premises product.  

Quick-serve concepts will need to adapt operating models and physical footprints to accommodate more throughput during peak hours. Traditional on-premises operators will need to enhance their on-premises experience to capitalize on pent-up demand for social dining, while trying to maintain the off-premises business they grew during the height of the pandemic. Temptation to revert to pre-pandemic models should be resisted, as operating flexibility and agility will be the keys to success in this new environment.            

Leveraging technology

The importance of technology was made abundantly clear during the height of the pandemic. Businesses with established digital platforms were able to operate at a high level and continue to grow. Others began to build out platforms and introduce technology in key areas of their operations. As operators adapt operating models to meet changing consumer preferences, technology infrastructure should also be assessed and new technologies introduced where appropriate. Data analytics will become increasingly important to evaluate operations and better understand customer preferences and buying behaviors. As technology is added, cybersecurity should also be assessed and enhanced for operating units, corporate offices and remote employees.   

Addressing labor challenges

Labor will be a significant challenge for restaurant operators in 2022 and beyond. Costs will continue to rise, but labor shortages will likely have a greater impact on operations and may limit growth. Successful businesses will leverage technology and data across their operations. Understanding traffic patterns and buying behaviors will allow operators to deploy resources more effectively. The use of mobile apps for payment will become the norm in quick-service restaurants and fast casual, and hand-held technology for servers in on-premises establishments will facilitate effective service with fewer employees. Operators will also need to employ creative recruiting and retention strategies to attract and retain the staff they have, as labor shortages in other industries will continue to draw people away from them.

Considering inflation

Inflation is already having an impact on the restaurant industry. As prime costs continue to rise, operators will have no choice but to raise prices and adapt menus. While pent-up demand will provide some price elasticity, the cost of rent, fuel and other consumer necessities will diminish disposable income and affect buying behaviors. Quick-serve concepts with low to moderate price points typically benefit when consumers need to stretch their disposable income. On-premises concepts will need to reengineer menus to provide greater value and enhance the overall dining experience.

Investing for growth

Despite the significant challenges of the past 24 months, there is room for optimism. Demand for food away from home remains high, and changing consumer preferences and restaurant closures have created opportunity for growth across the industry. Expect investment in the industry to continue to ramp up in 2022 as on-trend, tech-enabled concepts expand their operating footprints and distressed brands look for financial partners to help them survive and evolve their operating models to accommodate shifts in consumer behavior. Savvy investors will focus on young, on-trend brands with room for significant growth and also will bargain hunt for well-known, established brands needing investment capital to adapt to the new environment. 

Want more consumer goods insights for 2022? Read our industry outlook.

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This article was written by RSM US LLP and originally appeared on 2022-04-18.
2022 RSM US LLP. All rights reserved.
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