Restaurant Advisors Outlook on Growth, Reform and Spending this Year

Opportunity and challenge from a restaurant advisors perspective are on the menus and plates of restaurateurs and foodservice operators this year. Coupled with a rise in economic growth are a number of factors that will impact sales and profitability, such as frugal diners, health care mandates and higher product costs. Several studies also show that the bottom line of many restaurants could be reduced almost 5%-6% based on these combined factors alone. Given that this projected reduction in profits is a significant loss to already razor thin margins in the commercial food service sector, how will your food and beverage operation survive? Growth According to a report in Nation’s Restaurant News, the growth in restaurant industry jobs was at a seventeen year high this past year. The NRA (National Restaurant Association) stated the number of foodservice jobs were double the overall economy rate and projects this trend to continue into this year as well. At first glance, more jobs suggest a higher amount of customers at eating and drinking places. Others believe this surge in employment numbers are likely a result of restaurants and foodservice establishments hiring more part-time staff, working under 30 hours, to avoid the insurance costs as part of the Obamacare mandate. There will be “growth” in the number of diners eating out – yet spending less – according to a restaurant advisors forecast published in Reuters. The report suggests that more customers will be penny pinching and this frugality could weaken guest check averages at restaurants already struggling with higher product costs and lower profit margins. Reform Obamacare will have a very large affect on 48% of retail and hospitality employers facing the biggest challenge over other businesses, according to a Mercers study “Health Care Reform after the Decision” who polled owners, operators and restaurant experts as they prepare for this legislation to take full effect in 2014. Approximately 65% of these same employers that are not in compliance are more inclined to change their work force strategy so that fewer employees work 30 hours or more per week according to its findings. In a separate Restaurant Smart Brief release, other strategies by businesses to contain health care costs that are being considered include eliminating health coverage for retired employees, increasing workers’ premiums and putting new employees into more basic health care plans. Large firms are less likely than smaller firms to make significant changes to their health coverage. Spending Restaurant operators continue to report rising food costs. According to the NRA’s Tracking Survey in its “State of the Plate”, restaurant operators reported a 2.5 percent increase in average food costs between September 2011 and September 2012. Costs for this year are expected to stay high, especially in main stay menu items such as coffee, beef, milk and poultry. Social media spending for restaurant marketing will continue to replace traditional advertising according to the VIBE (Very Important Beverage Executive) “201310 Top Social Media Marketing Trends.” There is also added support for why foodservice operators should incorporate this trend into their restaurant bar business plan by the “Ogilvy Chatthreads Social Media Sales Impact Study” that concluded social media increases the number of people eating at a particular restaurant, when combined with other promotional efforts such as public relation programs and television advertising. In conclusion, we believe as restaurant advisors, this year should see a modest rise in sales activity, probably in the 2% to 3% range in most markets, and among all commercial food and beverage operations. This is hardly a strong upward trend in that 5% to 6% signals real growth in our experience. Still, the real opportunity and challenge will revolve around the ability for restaurant managers and foodservice operators to contain labor expenses and product costs that are expected to rise at least that much and more. Translation – anticipate flat or dwindling profits in 2013.