BofA Report: New Appreciation for Restaurants

There is a widespread new appreciation for restaurants, an encouraging sign for the future, according to The Bank of America 2022 State of the Restaurant Industry report. In other encouraging news, franchise operators believe that, although most restaurants are not fully staffed, the labor situation has stabilized.

Modern Restaurant Management (MRM) magazine asked Cristin O’Hara, Managing Director and Head of Restaurant Group at Bank of America, to elaborate on some of findings. 

How would you characterize 2022 for restaurants? What were major challenges for them? 

In 2021, restaurants saw a rebound, leading many to approach 2022 with rose colored glasses. Unfortunately, last year took a turn for the worse; the momentum from 2021 was stunted as we embarked on 2022. Restaurant profit and loss statements were hit hard due to major labor and commodities challenges. Other supply chain related events, which spanned from restaurant equipment (creating issues for restaurant development and timing) to the Avian flu/eggflation issues, also negatively impacted the industry.

What issues/challenges do you see ahead for restaurants as we head in 2023 and what advice can you offer to help? What are ways they can bring more people in?

Quick Service Restaurants (QSRs) in particular thrived during the pandemic, largely due to drive through capabilities and technological innovation. However, as we begin 2023, the possibility of a recession could create challenges for key demographics that often represent a large percentage of the QSR demographic and a significant percentage of some casual dining outlets as well despite overall higher wages for this population, due to inflation etc. This demographic will likely be challenged by juggling many competing needs such as housing, interest rates, other critical needs in addition to their food basket. Restaurants depending on this demographic need to retain these customers to keep the traffic coming in and keep their top lines growing. 

If one made it through 2022 relatively unscathed you ought to feel very good as a restaurant owner/operator.

QSRs will compete with grocery stores who are doing a nice job balancing prices and offerings to make it convenient for shoppers. This creates another challenge for QSRs and its key demographics since the decision is theirs whether to dine at a QSR or stop at a grocery store. Although certain segments will benefit from folks trading down, everyone needs to keep their core customers interested and engaged.

In terms of advice, restaurants must learn how to quickly pivot, whether that means embracing innovation or improving their services by being more flexible and adaptable. Restaurants must also learn to operate with fewer employees and rely more on technology. 

On the franchise side, what do you foresee in 2023? Are some doing well and others not so? Is there investor interest?

There is high investor interest in franchises, especially through family offices. However not all franchises are created equal in terms of bankability as it depends on the brand. Though there is interest, there will be differences between buyers, sellers and bankers when it comes to valuation. There are some good operators that think there are opportunities in 2023, which will be exciting to watch.

Additionally, we will see interesting M&A activity in the second and third quarters of 2023. Once the industry moves past the weaker winter months it will restabilize. More activity will begin to percolate, which makes me feel positive about the second half of 2023. 

Should restaurant owners be excited or scared facing 2023? What are encouraging signs for the future?

If one made it through 2022 relatively unscathed you ought to feel very good as a restaurant owner/operator.

The key components for restaurant owners are employees and partners; labor and training continue to be significant factors for restaurants. We are hearing a lot of positive insights from clients about the labor market. Restaurants have learned to operate with fewer people and rely more on technology which is necessary as the labor market continues to tighten.

The labor market continues to be tight (but there are signs of hope).  Unemployment appears to be on the rise which allows for more workers to be available to work in restaurants, serving as line cooks, servers and hosts, among a number of other services.

Growth won’t be as fast as one would have hoped, and supply chain continues to be a challenge. The good news is that there will be less turnover with a tight labor market. 

Were you surprised about any findings?

We were pleasantly surprised that full-service restaurants are doing as well as they were prior to the pandemic. We had expected the triple-demic to continue to impact them, but fortunately that’s not what happened. Many people dined indoors — with or without masks — and continued to frequent full-service restaurants and QSRs. 

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