Full Course’s Founder and CEO Lauren Fernandez and Chief People + Culture Officer Lissa Bowen provide perspectives on the state of the restaurant industry with a particular focus on capital spend, pent-up deal flow, and labor challenges.
Shortage of Capital for Restaurant Technology
As we marched into 2023, interest rates and uncertain economic conditions continued to impact the withdrawal capital from restaurant technology investments. Investments in venture capital had a massive retreat in 2023, hitting the technology sector very hard. As we look back, there was a long-overdue flood of tech investment into our industry, largely as the result of the boon of food delivery during the pandemic.
As delivery dropped back down to more normal levels, we saw a number of delivery start-ups and tech dying on the vine. However, our industry still is an attractive space for well-suited technologies, improving efficiencies at every level of the restaurant from inventory to customer service. It will continue to be a rapidly evolving area for growth for players who understand the game, but like all investments, will likely be subject to market conditions.
Pent-Up Deal Flow Fueling M&A
There is no historical playbook on how to forecast economic conditions post-pandemic, especially considering the amount of economic stimulus that was pushed into the industry. The current inflationary pressure seems to be reducing and will likely drop slowly over the next year. What we do know is banks pulled back on commercial lending at every level, from local to goliaths.
However, pent-up deal flow needs an outlet; as interest rates stabilize and inflation drops, we expect to see a higher-than-normal number of merger and acquisition (M&A) activity next year. At a unit level, some franchisees will continue to sign deals and take on higher construction and real estate costs, but most will still end up with delayed openings due to limited real estate options. Generally, expect restaurant development to be an interesting dichotomy of slow growth in the field, while big deals explode.
Creative Growth Strategies Emerge
Development pipelines were choked this year, due to long-time supply chain delays, high construction expense, and a lack of lending options. Even though franchisees may have signed deals, they were having difficulty finding affordable real estate, even if they had funding. Many franchisees who signed deals pre-pandemic may have just opened their doors in 2023. In 2024, we will see blended effect on development pipelines for many brands, from low real estate availability, high rents and construction costs. The caveat is that smart brands will pivot to alternative growth strategies such as non-traditional development and modular builds, for example. We also expect a number of larger brands pushing out into new channels such as licensing deals and product development, catering programs and more.
– Lauren Fernandez
Restaurants Learn To Do More with Less
In workforce dynamics, we have seen a notable upswing in the number of workers entering and/or returning to the industry, with staffing levels inching closer to pre-pandemic levels. Despite this positive trend, the majority of restaurants still report being understaffed (62 percent), according to the National Restaurant Association (NRA). Both limited-service restaurants (61 percent) and full-service eateries (63 percent) are challenged to accommodate guests while operating with fewer employees. The NRA reported in mid-year 2023 that restaurants were 0.5 percent below the February 2020 employment peak.
The Great Resignation Continues
This persistent labor shortage is being impacted not only by workers departing the industry during the pandemic to find more stable employment in other sectors but also by America’s aging population and the cost of childcare. More baby boomers than normal retired during the pandemic, and the American workforce is shrinking. Predictions show by 2040, the United States will have over six million fewer working-age people than in 2022.
Additionally, the younger workforce is facing obstacles with escalating childcare costs. Parents of young children pay an average of $13.85 an hour for childcare. Equally challenging is finding suitable daycare since so many childcare providers shut their doors during the pandemic or reduced their services.
Why Employee Retention Will Be Key to a Bright Future
The restaurant industry also was plagued by all-time high turnover rates (reported at +75%). In 2013, the average turnover rate was 62.4%. In 2022, the average tenure for an employee in food service was about 1.9 years, with the average across all industries being 4.1 years. While fair pay continues to be the top reason employees leave, the other big factors are a lack of opportunity for growth and development, the quality of management and communication, reasonable benefits like PTO and flexible schedules, and not feeling they are recognized for their hard work.
As we step into 2024, my prediction is that the spotlight will fall squarely on retaining top talent, focusing on recruitment, onboarding and ongoing training.
– Lissa Bowen