Rising food and labor costs continue to squeeze profits, despite the restaurant industry’s robust sales, according to the National Restaurant Association’s State of the Industry report.
Menu prices drove industry sales to a significant degree, with the National Restaurant Association saying menu prices were up 8.8 percent year-over-year at their peak in March 2023.
In December 2023, menu prices were 5.2 percent higher than in December 2022, yet the increase outpaced inflation (up 3.9 percent) and food purchased at grocery stores (up 1.3 percent).
Joe Watson, vice president of retail, foodservice, and wholesale membership for the Newark, DE-based International Fresh Produce Association (IFPA) BB #:378962, supplied information from IFPA’s latest quarterly foodservice report conducted by Technomic.
According to the report, more operators are seeing quarterly expense increases of 15 percent or higher on both food and nonfood supplies since the end of 2023, which has negatively impacted profit growth and wiped out some of the gains from increased sales and traffic.
Rachel Atkinson-Leach, vice president of brand and category excellence at RPE, LLC, a shipper of potatoes and onions in Bancroft, WI, BB #:105471 agrees.
“Higher staffing costs, food cost increases, inflation, and people eating out less have led to less business and shrinking margins. Foodservice operators continue to be plagued with costs—fueled mostly by inflation, skilled labor, and cost of goods—which cut into margins.
“This leads to higher menu prices and makes their offerings less attractive to consumers,” she adds. “Figuring out ways to get people into their restaurants with the financial challenges many people are facing has been daunting.”
Atkinson-Leach says the industry is going to need to ride out the current economic situation and hope people will want to return in bigger numbers to restaurants at some point.
“Except for cutting pricing, which doesn’t seem to be realistic, there’s not much they can do to get more foot traffic into businesses on a regular basis. As has always been the case, they will need to run their operations as lean as possible.”
Mark Shaw, vice president of operations at Markon Cooperative, Inc. {{BB #:123315}} in Salinas, CA, echoes many of the same thoughts, but sees a sliver of silver lining.
“Inflation continues to hamper business,” he agrees. “Foodservice operators are having a tough time covering costs, while customers can’t afford to dine out as often as they did before the pandemic.
“While challenges will persist as we move through 2024, there’s some optimism that inflation will be contained or even inch down.
“In the meantime,” he continues, “restaurants continue to do what they do best: get creative and innovative to deliver on quality and deliciousness.”
Melodie Beal, head of culinary development for Amazon Fresh BB #:283186, says grocery stores must do the same, offering inspired sides dishes and meals for shoppers.
“As chefs, my team loves to develop foodservice products to help customers create meals for their family and friends they normally wouldn’t consider preparing on their own on a weeknight.”
She mentions a noodle meal kit with fully prepped vegetables, sauces, garnish, and simple instructions, “Making it possible to put an authentic and inspired meal on the table in about 10 minutes. I’m seeing this across the industry—fast, delicious meal solutions that help customers imagine what they could make.
“This is working great in merchandising, too: refrigerated endcaps (displays at the end of store aisles) with mixed categories to simplify meal ‘imagining’—think marinated meats ready for grilling, sour cream, salsas, guacamole, salad mixes, prepped fajita vegetables—all in one space.”
This is an excerpt from the feature story of the July-August issue of Produce Blueprints Magazine. To read the whole issue, click here.
