'Normal' Restaurant Business Operations a Year Away

More than half of restaurant operators said it would be a year or more before business conditions return to normal, according to a newly-released National Restaurant Association’s 2022 State of the Restaurant Industry report.

Food, labor, and occupancy costs are expected to remain elevated, and continue to impact restaurant profit margins in 2022. Labor, in fact, is forecast as the industry’s top challenge this year.

Additionally, 51 percent of adults say they aren’t eating at restaurants as often as they would like, which is an increase of six percentage points from before the pandemic.

The foodservice industry is forecast to reach $898 billion in sales in 2022, spurred in part by operators using technology to improve their off-premises sales.

The foodservice industry workforce is projected to grow by 400,000 jobs, for total industry employment of 14.9 million by the end of 2022.

Ninety-six percent of operators experienced supply delays or shortages of key food or beverage items in 2021—and these challenges will likely continue in 2022.

Reasons for Optimism

“The restaurant and foodservice industry has adapted and is carrying on with absolute resilience, so we’re optimistic about the path toward recovery in the coming year,” Marvin Irby, Interim President & CEO of the National Restaurant Association, said in prepared remarks.

A few years ago, restaurants couldn’t have managed the level of off-premises demand during the pandemic. Technological advances are becoming table stakes for this long-term business channel, with more than eight in 10 operators saying the use of technology in a restaurant provides a competitive advantage, and a good proportion of operators plan to ramp up investments in technology this year.

Many operators will devote their resources to online or app ordering, reservations, mobile payment, or delivery management, in addition to back-of-the-house technology. This is validated by a large number of consumers preferring the use of technology where it doesn’t diminish hospitality.

Help (Still) Wanted

While the restaurant and foodservice industry added back 1.7M jobs during 2021 for an end-of-year total of 14.5M employees, many restaurants remain severely understaffed, and this will continue to constrain industry growth in 2022.

Despite some gains, 7 in 10 operators across all major segments say their restaurant currently does not have enough employees to support customer demand and most operators expect their labor challenges to continue through next year. 

Roughly 50% of restaurant operators in the fullservice, quickservice, and fast-casual segments expect recruiting and retaining employees to be their top challenge in 2022.

Alcohol To-Go, Outdoor a Bright Spot

The past year has also continued to drive consumer demand for alcohol to-go and outdoor dining with nearly four in 10 consumers saying the availability of outdoor seating would make them more likely to choose one restaurant over another similar one. 

Other operational takeaways include:

Fifty-four percent of adults say purchasing takeout or delivery food is essential to the way they live, including 72% of millennials and 66% of Gen Z adults.

Roughly half of U.S. restaurant operators think the availability of seating on a sidewalk, parking lot, or street will become more common within their segment this year.

Seventy percent of Gen Z adults (age 21+) and 62% of millennials say the option of including alcohol with a takeout or delivery order would make them more likely to choose one restaurant over another similar restaurant.

Outdoor Dining, ‘To-Go’ in High Demand

Daniel J Villalpando, partner with Cox, Castle & Nicholson, tells GlobeSt.com that based on experiences during the pandemic, restaurants are looking to use whatever common area is available (sidewalks, parking lots, etc.) to offer outdoor seating.

“From a leasing perspective, going forward, restaurants will be negotiating for the use of outdoor patio areas. Also, restaurants are requesting “to go” or “take out” parking spaces that are reserved for their use and conveniently located adjacent to their restaurants. 

“Most quick-service restaurants are being forced to provide menu and ordering options through websites and/or apps. Additionally, offering convenient pick-up parking for customers who have ordered remotely has become extremely important.”

Villalpando said nearly all restaurants have had to negotiate with delivery services (GrubHub, DoorDash and Uber Eats) to try to maintain as much profit from sales as possible, while offering the convenience of “to go” order and delivery services.

“Some restaurants have tried to expand their use provisions by, for example, being able to sell alcohol for off-premises consumption,” he said. “This may run afoul of leases with other tenants who have the exclusive right to sell alcohol for off-premises consumption (like liquor stores and grocers).”

Specialty Restaurants an Underperformer

Full year sales increased by 9.85% for restaurants in 2021 compared to 2019, 17.65% for fast food and 14.23% for specialty food, Mark Sigal, CEO, Datex Property Solutions, tells GlobeSt.com.

The one outlier segment was specialty restaurants, which saw sales contract by 17.46%, owing to social distancing and other COVID-related restrictions in the pandemic.

“The favorable outlook for food, drink and restaurants in 2022 and beyond is reflected in new leasing activity, which saw rental rates increase for these categories by ~6%, relative to rental rates in 2019, which were flat-to-negative,” Sigal said.

“Both merchants and landlords are embracing these categories in a big way. The key takeaway relative to COVID is that while some categories were existentially impacted by the pandemic (such as movie theaters), consumers gravitated to all things eat, drink and dining related, resulting in serious revenue growth, and more importantly, consumer behavior that should favor these categories in the years ahead.”

Restaurants Aren’t Downsizing

Michael Wiener, president, Excess Space Retail Services, also believes the restaurant industry will remain strong in 2022.

“While many had projected that restaurants would be downsizing, we haven’t seen much of that to date,” Wiener tells Globest.com. “What has been trending is a significantly higher demand for pad sites as restaurants, QSRs and other retail concepts want to have drive-thrus, resulting in a very competitive environment even in areas that aren’t the A locations.

“We are also seeing QSRs and restaurants wanting to control their “rent to sales ratio” by maintaining a formal lease renewal/lease restructuring program.”

New Dining Concepts Winning Out

Landlords, for their part, are looking for food concepts that have a bigger to-go business, creating more resilience in the business model, Mike McKean, founder, Retailsphere, tells GlobeSt.com

“This has led to different space needs than seen in past years—smaller dining rooms and larger kitchens, often with to-go windows,” McKean said. 

“All this said, the past few years have shown how resilient the restaurant industry is and there only seems to be a growing interest in bringing new food and beverage concepts to clients’ spaces.”

“People still aren’t eating out as much as they once were, and when they do, they want it to be special,” McKean continued.