The U.S. inflation rate rose to 9.1 percent in June 2022—the highest rate in about 40 years. The Federal Reserve also announced in July that it would raise interest rates by another three-quarters of a percentage point.
What does this mean for restaurants? They’re seeing skyrocketing food costs, of course, and scrambling to adjust by cutting costs in other areas. They’re also experiencing a cascading variety of other concerns—in addition to some unexpected upsides.
“In some ways, inflation is actually benefiting quick-service restaurants,” says Lenny Evansek, senior vice president of national retail business development at Loomis. “As consumers bear more costs in their day-to-day lives, they’re beginning to ‘trade down’ from certain eating establishments. We’ve seen strength from the recent earnings of major quick-service chains as consumers return there.”
As inflation also drives up food costs from distributors, however, restaurants are under increasing pressure to cut operating expenses. “We’ve seen restaurants cut hours and close dining rooms to focus more on the drive thru, pick up, and delivery,” Evansek says.
Of course, the labor crunch has also influenced those decisions. One million hospitality workers quit their jobs in November 2021—7 percent of the total workforce. Wages have increased to attract a shrinking labor pool and to keep up with inflation, representing another rising expense that operators must control. “Ultimately, the fastest way to reduce operating expenses is to reduce labor or to maximize the amount of labor they already have,” Evansek says. This can mean learning to live with ongoing severe staffing shortages and getting creative on how to do more with less.
As interest rates rise along with inflation, restaurant operators may be looking to increase the frequency of their cash deposits—but they may be too understaffed to spare someone to drive to a bank branch every day. “Now the money just stays in the restaurant, and as interest rates rise, operators are missing out on money they could otherwise use to pay down lines of credit or bills accruing interest fees,” Evansek says. “If money is staying in the restaurants, they can’t use it or invest it, and in a higher interest rate environment, that actually means something.”
Restaurants that rely on lines of credit for expansion, investment, remodeling, and mergers and acquisitions may also have a tougher time paying for their brand’s growth. “Higher interest rates increase the cost of credit for the business,” Evansek says. “That ties into finding other ways to reduce cost or maximize capital. Underperforming stores may close. The underwriting process for credit may become more restrictive, or fees may increase for banking services. Restaurants may look to consolidate their bank depository relationships so they can get a better deal on banking fees or a higher earnings credit from account balances.”
To help offset these pressures, solutions like Loomis SafePoint and Cash Exchange eliminate the need to send a person to the bank for daily deposits and change—saving anywhere from 45 minutes to two hours a day. With SafePoint, operators also get provisional credit from their bank every business day to help maximize their capital. Loomis Kickfin also helps automate the end-of-shift cash management and tip-out process to ensure employees can be tipped electronically every day.
To learn more, visit the Loomis website.
By Kara Phelps
