There’s a lot to take in when sorting out the big picture of our industry, the overall economy, and changes we can expect in 2017. With hot takes and alarmist news filling the airwaves, it can be hard to parse out what’s really happening on the ground in the restaurant industry.
The reality is, the restaurant industry remains a robust and significant part of the overall U.S. economy, accounting for over $782 billion in sales per year at over one million locations nationwide. Our industry employs 14.4 million, with an expected growth of another 1.7 million jobs within the next decade. That amounts to 10% of the total American workforce. With latest overall unemployment rates half what they were eight years ago, that tells a very good story about the viability of our corner of the hospitality market.
Stuck in neutral
Looking specifically at growth expectations in 2017 tells a slightly more somber story in the short term, however. According to food industry information provider Technomic, the restaurant industry can expect to retain fairly neutral growth over the course of the next 12 months. They anticipate full service growth to register at 3.5 percent and limited service to peak at 4.9 percent. With an expected inflation rate of 2.7 percent, this does not leave much to the imagination in terms of real improvements across the board.
“Major full service chains, especially in the casual dining sector of the market, are really struggling,” stated Joe Pawlak, Technomic Managing Principal. “However, independents seem to be holding their own as consumers are gravitating to these establishments due to their unique offerings, local orientation and strong value propositions.”
The size of the restaurant industry might very well be reaching troubling proportions, as supply of options for consumers is at heights not seen in almost a decade. These independents and smaller chains do make up a larger proportion of the market than they did in 2007, which experts say may be leading us into a restaurant recession in 2017.
“We believe the industry has at least 18 months of challenges ahead in terms of softer same store sales and higher labor costs because of capacity growth and labor tightness, a year after the stock peak in summer ’15,” wrote Andy Barish of Jeffries, the global investment banking firm.
Slower traffic, due to a combination of current and future economic concerns from consumers, is leading to lowered expectations — and in some cases, increased menu pricing that may keep profits in the black.
But this tactic may herald larger problems down the line, with grocery stores finding new ways to close the gap in spending between their market and non-grocery (restaurants, home delivery meal kits, grab and go kiosks). The expansion into grocerants — mini-restaurants inside larger grocery store chains — and fully prepped food for take-away is giving grocers an edge with wholesale food prices dropping and consumer concerns about price point for their daily meals.
Ultimately, restaurants that increase their prices — or even resist lowering or discounting in a time of economic uncertainty — have to develop other ways to attract customers and drive more sustainable business through their doors.
One approach to attracting customers that seems to be picking up steam across the board with restaurateurs is increasing quality of service and product while avoiding making dramatic price increases across the board. In fact, there’s a trend developing at almost every level of the industry to aspire to a “higher” segment in order to set your restaurant apart from the crowd.
For instance, the quick serve giant McDonald’s recently unveiled a two-pronged approach to improving efficiency at select locations. They are trialing an installation of self-service kiosks for ordering, while reallocating staff resources to table service.
This not only gives McDonald’s a sense of heightened service normally reserved for fast casual or casual fare, but also improves flow through. By eliminating the need to have patrons stand around for their food, even a minute or two, blocking space needed for more order-taking, more customers can be serviced, and cared for with a modicum of human touch.
And while quick serves overall found 2016 to be a successful year, outpacing same store sales in every other segment of the restaurant industry, this segment is not alone in seeking to blur lines between it and its industry cousins. The move toward fine casual methodology — that blending of fast casual with fine dining aspects — has produced huge results for establishments like Shake Shack, Xoco, and ‘wichcraft.
Where does that leave fine dining, a segment already considered to lead the pack in terms of quality and service for the industry? Their mission in 2017 is to stand out. In a crowded restaurant industry, the success of a fine dining establishment is going to depend on being seen as the driver of trends, resting on the literal cutting edge of the chef’s world, while still appealing to their customer’s core desire for a rich experience.
It’s a difficult balance to strike, and some of that experimentation is also being seen in the proliferation of pop-up restaurants across all segments, a trend that’s looking to expand to new heights in the coming year. Just as food trucks represented a lower cost opportunity for working out of alternative space, so too does the transient, temporary nature of the pop-up restaurant.
Particularly with economic uncertainty looming, a pop-up restaurant is a low-risk, high-reward path to drive interest. It also helps gauge what works and what doesn’t about your concept, all at a fraction of the overhead required of an existing brick-and-mortar restaurant. Costs are high for the restaurant industry, not always fully anticipated, and that aspect of the business isn’t diminished in 2017.
In fact, it may be quite the opposite.
An undefined future
With the 2016 presidential election over, a lot of preconceived notions about costs and restrictions businesses of all sizes would need to endure have been thrown into question.
Some speculation remains about the state of the Food and Drug Administration and the power it wields under a new administration, so restaurateurs concerned about deadlines on menu labeling hitting in early 2017 may or may not still be compelled to publish all or any of their nutritional information under the preexisting ruling.
What is certain is that President-elect Trump has promised to overrule the Obama administration order increasing the maximum annual salary level for employees eligible to receive overtime pay from $23,660 to $47,476 (i.e. $455/week pre-tax to $913/week).
That was to go into effect on December 1, 2016, but a federal judge in Texas issued an injunction two weeks prior, leaving a temporary hold on the change. The White House is objecting to the hold, but the action is likely moot given the incoming president’s commitment to immediate executive action against it.
The debate over minimum wage is also likely to become a key issue in the coming months, with President-elect Trump and a Republican-controlled Congress firmly opposed to any raise in minimum wage. The result of this presumed inaction may have wide-ranging effects in city and state minimal wage laws, as more local municipalities take matters into their own hands.
The Fight for $15 campaign has already seen legislative success in cities including Seattle, San Francisco, Los Angeles, New York, and Washington D.C. If other areas of the country, particularly those with lower cost of living and larger groups of unskilled labor, follow suit, restaurants could see themselves in more challenging conditions than if there were a new federal minimum wage law passed.
Overall, the restaurant industry as a whole is positioned better than many going into the relatively uncharted waters of 2017, but each restaurant and small business needs to take care to plan, weigh decisions carefully, and build a safety net in case economic conditions falter.
As a means of cash infusion to help restaurants maintain a stable cash flow, Rewards Network’s financing solutions are uniquely suited for uncertain times. These solutions rely solely on the business you currently have. Unlike a traditional business loan, we only get paid when you do, and we also help drive more business through your door.
To learn more about what Rewards Network can do for your restaurant in 2017, try out our simple two-step financing calculator now.
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