The year ahead will represent another challenging business environment for restaurants. Staffing shortages and elevated costs will remain front and center, with the majority of operators citing them as a significant challenge for their business, according to the National Restaurant Association’s 2023 State of the Industry Report.
A new addition to the industry’s headwinds will be a slowing economy, driven by the Federal Reserve’s aggressive effort to stamp down inflation. The Association expects the economy will weather rising interest rates without suffering a significant downturn in 2023, but that doesn’t mean it’s going to be smooth sailing. As was the case in 2022 and 2021, sales growth will be driven in large part by higher menu prices. While the report projects food and beverage sales will surpass pre-pandemic levels in 2023, they won’t on an inflation-adjusted basis.
The State of the Industry report is based on analysis and forecasts from the Association’s economists, as well as surveys of restaurant operators and consumers conducted throughout the year. It covers six segments, including quick service, fast casual, coffee and snack, family dining, casual dining, and fine dining. Here are seven takeaways for quick-service operators.
Operators have a foggy outlook
The Association projects food and beverage sales at quick-service restaurants will reach $395 billion this year, up 1.4 percent from 2022. Operators aren’t quite as optimistic. A quarter of quick-service operators expect their sales volume will be lower in 2023 than it was in 2022. Just over a third expect their sales volume will be higher, and 42 percent expect it will be about the same.
Across all segments, only 16 percent of operators think their restaurant will be more profitable in 2023 than it was in 2022. Half expect to be less profitable, and 34 percent expect their profitability will remain about the same. Those numbers hold steady across the quick-service segment. Fifteen percent of quick-service operators expect to be more profitable in 2023, 50 percent expect to be less profitable, and 35 percent expect their profitability will remain the same.
Most restaurants aren’t thinking about expanding their number of units this year, according to the report. Twenty-seven percent of quick-service and fast-casual operators say it’s likely they’ll open new locations in 2023. Only about one in eight full-service operators say they’ll explore new restaurant openings in the year ahead.
Inflation and labor remain top of mind
Across all segments, 92 percent of restaurant operators say food costs are a significant issue for their business. Ninety percent say inflation poses a significant challenge, and 89 percent feel similarly about labor costs. Drilling down into the quick-service segment, 95 percent of operators cite food costs as a major challenge, with 93 percent citing inflation and 92 percent citing labor costs. Other challenges for the segment include recruiting and retaining employees (83 percent), the economy (78 percent), and energy or utility costs (59 percent).
The restaurant industry added 2.8 million jobs over the past 24 months and reached 15 million employees by the end of 2022. Despite those gains, employment remains around 400,000 jobs below pre-pandemic levels. The Association anticipates the workforce will continue growing in the year ahead, with a return to pre-pandemic employment levels expected during the second half of the year.
Restaurant operators remain concerned about the labor situation. One in 10 operators think recruiting and retaining employees will be easier in 2023 than it was in 2022. More than a third say it will be even harder.
Consumers are worried about their personal finances
Only 36 percent of adults describe their personal finances as in either excellent or good condition, while 64 percent say their finances are in fair or poor condition. This has a direct impact on their willingness to spend.
When asked to describe their personal spending behavior, 16 percent of adults say they’re confident in their financial situation and aren’t holding back on spending. A little less than half say they’re taking a wait-and-see approach and are holding back on spending until the economy improves. Just under 40 percent say they’re very concerned about the economy and are pulling back on spending.
Younger consumers are feeling more hopeful about their economic prospects in 2023. More than half of Gen Z and millennial consumers expect their personal finances to get better this year, versus less than a third of baby boomers.
Value is key
With households expected to face more challenging economic conditions in the year ahead, many consumers will look for bargains to entice their restaurant use, according to the report. Loyalty and reward programs are a key strategy for bringing in repeat customers. Eight out of 10 consumers say they’re likely to participate in loyalty and reward programs for frequent customers when they’re offered.
Smaller portions and discounts could attract inflation-weary customers, too. Seven in 10 adults say they would likely order smaller-sized portions for a lower price. Nearly 80 percent say they would take advantage of discounts for dining on off-peak days, and 77 percent say they would take advantage of discounts for dining at off-peak times during the day.
Off-premises will continue to shine
As of November 2022, restaurant operators across all six segments covered in the report said off-premises sales represented a higher proportion of their average daily sales than it did in 2019. Nearly six in 10 operators expect off-premises sales in 2023 to be about the same as they were in 2022. Quick-service and fast-casual operators are most likely to expect an increase in their off-premises business this year. Thirty-four percent of quick-service operators and 30 percent of fast-casual operators say their off-premises sales volume will be higher in 2023.
Ghost kitchens remain a relatively small part of the restaurant landscape, and operators have mixed opinions about their future. Thirty percent of operators think delivery from a virtual or ghost kitchen will become more common in their segment in 2023. A similar portion says it will be less common. Customers also have mixed feelings about delivery-only kitchens, with 70 percent of adults (including nearly 80 percent of millennials) agreeing that when ordering delivery, it’s important that the food comes from a restaurant that has a physical location that is accessible to the public.
Quick-service and fast-casual operators see opportunities with drive-thru or takeout-only stores. Forty-four percent of quick-service operators and 42 percent of fast-casual operators think those formats will become more prevalent in 2023. A similar portion believes the addition of drive-thru lanes will become more common. Limited-service operators also have high expectations for dedicated takeout counters or windows. Half of coffee and snack operators, 49 percent of fast-casual operators, and 47 percent of quick-service operators say dedicated takeout areas will grow in popularity in the year ahead.
Remote work may be coming to restaurants
Consumers have mixed feelings about emerging restaurant technologies. In general, they’re not interested in automated systems and robots preparing or delivering their food. Baby boomers are especially uninterested, while most Gen Z and millennial consumers are at least open to trying those options.
One emerging technology consumers appear to accept involves staffing restaurants with remote workers. According to the report, some restaurants with drive-thru windows or walk-up counters have begun taking customer orders via a live person on a video screen. Those workers aren’t inside the store, but they take orders in the same way that an onsite worker would. Sixty-five percent of consumers say they would have a favorable reaction to restaurants that have drive-thru windows or walk-up counters staffed by a remote worker on a video screen, including nearly 80 percent of Gen Z customers and 55 percent of baby boomers.
Competition is heating up
Competition is a concern for restaurant operators heading into 2023. Across all segments, only 7 percent of operators think competition will ease in the year ahead. Around half say it will be more intense than it was in 2022.
Exactly half of quick-service operators surveyed by the Association say competition will be more intense in 2023, and 43 percent think it will be about the same. Just 7 percent say it will be less intense. Fast-casual operators are slightly less concerned about the competitive landscape. Forty-five percent say competition will be more intense in 2023, while 49 percent believe it will be about the same and 6 percent believe it will decrease.