As you plan for 2024, we thought it would be helpful to provide the current outlook for key factors affecting the restaurant and frozen yogurt industry in 2024. According to experts, the restaurant industry will continue to recover from the pandemic, with stable or slightly higher costs, easing of the labor shortage, increased use of technology, and continued demand for delivery.
Costs Rise Slightly
Food costs haven’t risen as much as the previous year as inflationary pressures have eased. According to the National Restaurant Association, “in the 12 months ending November 2023, average wholesale food prices declined 5.6%. That marked the seventh consecutive 12-month decline – and the largest year-over-year drop in more than 7 years. The recent slowing of growth followed an 18-month period of double-digit gains – including a peak increase of 17.7% in April 2022.”
Food costs have been rising slightly. According to The State of the Industry Customer 2023 Survey by Restaurant365, more than 80 percent of respondents said food costs rose over the past year, and 89 percent said labor costs increased. Over 50% said the cost increase was in the 1% to 5% range. The same survey found that of the more than 89% of respondents who said labor costs grew in 2023, over half said the increase was in the 1% to 5% range.
The US Bureau of Labor Statistics reported five consecutive months of restaurant price increases in August 2023 (6.5% annualized for the month for restaurants vs. a 3% increase for retail food). After months of restaurant industry price increases, consumers could become more price-sensitive and seek more value options. They may choose to dine at home more often and choose fast food and fast casual restaurants over expensive, full-service restaurants.
To cope with the cost challenges, restaurant operators should look for ways to optimize their operations, reduce waste, and increase efficiency. Some of the strategies that can help achieve this include:
- Leveraging data analytics to forecast demand, adjust pricing, manage inventory, and optimize staffing
- Implementing labor automation to handle routine tasks, such as self-checkout, order-taking, and payment processing
- Negotiating with suppliers and vendors to secure better deals and discounts
- Exploring alternative sources of revenue, such as catering and subscription model
Labor Shortage Eases
The labor shortage has been one of the most persistent and pervasive problems for the restaurant industry, but the outlook has improved. During the pandemic, many restaurant workers left the industry due to health and safety concerns, low wages, and lack of benefits. The labor outlook has improved. According to the National Restaurant Association, eating and drinking places added over 6 million jobs since April 2020 and the November 2023 job numbers exceed February 2020’s employment peak by 46,000 jobs. While the number of full-service eating and drinking place jobs is 4% below the pre-pandemic level, employment levels at snack and non-alcoholic beverage bars are 13% higher than in February 2020.
Bureau of Labor Statistics found that restaurant and accommodation job openings declined from 8.2% in August 2022 to 6.7% in August 2023. The quit rate fell from 5.3% in July 2022 to 3.9% in July 2022.
To attract and retain talent, restaurant operators need to offer competitive compensation, flexible schedules, career development, and a positive work culture. Some of the ways to achieve this include:
- Providing incentives and bonuses for performance, referrals, and retention
- Offering training and upskilling opportunities to enhance skills and knowledge
- Creating a culture of recognition and appreciation for employees
- Investing in technology to reduce workload and improve workflow
Technology Adoption in Restaurants
Technology has been a key driver of innovation and transformation for the restaurant industry. The pandemic has accelerated the adoption of digital technologies, such as online ordering, delivery platforms, mobile apps, and contactless solutions.
Technology can help restaurant operators enhance the customer experience, increase efficiency, and gain a competitive edge. Some of the trends and opportunities that technology can offer in 2024 include:
- Using artificial intelligence (AI) to provide personalized recommendations, offers, and feedback
- Integrating data from various sources, such as social media, reviews, and loyalty programs, to gain a holistic view of customer behavior and preferences
- Implementing real-time analytics to monitor performance, identify issues, and optimize decisions
- Improving software integrations to streamline processes, reduce errors, and increase productivity
Demand for Delivery Seems Stable
Delivery has been a lifeline for many restaurants during the pandemic, as it allowed them to reach customers who could not or would not dine in. According to a study by AlixPartners, delivery accounted for 20 percent of total restaurant sales in 2023, up from 9 percent in 2019. The study also found that 63 percent of consumers said they plan to order delivery more often or the same amount in 2024.
Delivery can help restaurant operators expand their customer base, increase sales, and improve customer loyalty. However, delivery also comes with challenges, such as high commissions, quality control, and customer service. Some of the ways to overcome these challenges include:
- Developing an in-house delivery system or partnering with a third-party provider that offers lower fees and better service
- Creating a loyalty program or a subscription model that can reward customers for ordering delivery
Conclusion
In 2024, the restaurant industry will have to balance the costs, labor, technology, and delivery aspects of its business, while also providing a unique and memorable dining experience. The restaurants that can successfully navigate these challenges and opportunities will be the ones that will thrive and grow in the future.
