By Sakshi Singh, Contributory Author
Jan 10, 2023 / 9 MIN READ
The restaurant industry will continue to struggle in 2023 because to the same problems that have plagued it ever since the Covid-19 outbreak. Food, drink, and labour expenses were all affected by inflation in 2022, and that trend is expected to continue in 2023. Tight management and shrewd investments will be required to ensure the sector's continued viability in 2023, especially in light of persistent economic uncertainties and the need for new or improved ways to deal with the sector's ongoing labour shortages.
Increase in raw material cost
According to Chef Vivek Rana, Group Executive Chef at Claridges Collection, raw material prices have increased by almost 20 percent to 30 percent but the increase in menu prices is 15 percent to 20 percent, hence, the profit margin has decreased, and because of this, it is hard for the companies to give annual raises to their staff leading to the staff, employees seldom looking for other job opportunities.
“However, if we focus on the positive side of this, restaurants and hotels have started to come up with many new and innovative concepts to decrease costs. Wastage of food in the kitchen is less (for example, carrot leaves are used for garnish, skin, and bones of meat are best for soup and the rest are put on the main meal),” he added.
Chefs are designing the menu with seasonal produce, and more collaborations are taking place between the restaurants/hotels and the local farmers. In the upcoming year, it is likely tol see many new concepts and techniques in the culinary world as people are learning more and more every day about food concepts and a sustainable future.
Lending money becomes expensive
Inflation and economic pressures can impact businesses in many ways. For example, rising prices can make it more expensive for restaurants to purchase ingredients and other supplies, which can cut into their profits.
“Economic pressures can also lead to decreased consumer spending, as people have less disposable income to spend on dining out. Additionally, inflation can lead to higher interest rates, which can make it more expensive for restaurants to borrow money for expansions or renovations,” shared Rajan Sethi, founder of Bright Hospitality Group.
When combined with ongoing economic uncertainty and the need for new or better strategies to deal with the sector's ongoing labour shortages, it will take tight management and smart investments to ensure the sector's viability in 2023.
Cost for protecting against risks rises
Even before the epidemic, investments in technology were essential for more effective operations, and it remains true today. However, rising technological services such as online delivery, point-of-sale systems, and contactless payments opens the door to cybercriminals. And some of the most prominent names in fast food have been criticised. This threat will only escalate in the future. The majority of major restaurant franchises require its franchisees to get cyber insurance. However, obtaining coverage is becoming increasingly complicated and expensive as threats intensify. In fact, experts predict that the number of firms that cannot afford coverage or are rejected coverage would treble by 2023.
Pressures add up against high labour cost
The food service industry is still moving away from its Covid-19 ways, but a variety of macroeconomic factors are slowing that progress. Rising inflation has an unmistakable impact on nearly every business in every industry, though some are more severe than others, particularly small businesses in the food, restaurant, and hospitality sectors.
Ankush Arora, founder of Uncle Jack's feels that it's very risky for small, family-run restaurants that operate just above cost as inflation and increasing costs will cut their already tight margins to the bone, making them the first to disappear when things start to bite.
Additionally he added that higher labor costs and raised costs for wheat, flour, vegetables, proteins, etc., tend to squeeze these restaurant owners. The majority of the audience is opting for take-out, which has resulted in a reduction in labour in the restaurant and hence increased unemployment. It seems clear where most of the pressure is, and it directs to some game-changing decisions to be taken by operators.
And, of course, reduced hours are common, especially given continuing difficulties finding workers for the front and back of the house. Job growth has been uneven in 2022 but the trendline has been up. Still, inflation-driven minimum wage hikes are further shrinking profit margins another pressure point for management.
In fact, the labor shortage may be one of the industry’s biggest continuing pain points in 2023, and while higher wages are part of the solution, there’s more to the solution than just money.
Rise in fuel cost will be the major pain point
In recent months, inflation and high petrol prices have impeded the nation's economic recovery from the COVID-19 pandemic. According to research, nearly 68 percent of small and medium-sized enterprises, including many eateries, have failed to recover owing to current gas prices.
Adding on the same, Nishant Sinha, founder of Roastery Coffee House commented that a hike in fuel prices and raw materials has a direct effect on restauranteurs. “We are a cafe that is well known for serving quality meals at pocket-friendly prices. However, recurrent hikes in prices puts us in a difficult position where we struggle to deliver at the same rates as the previous year. We work meticulously to keep the hike in our prices to a minimum every year. Importantly because, we are a cafe and we cannot keep fine-dining standards of pricing even though, the food we serve is fresh, and of superior quality. In fact, our menu also has gourmet dishes such as handmade tortellini and gnocchi among others,” he said.
However, Covid and the subsequent lockdowns have taught the industry how to manage best in times of crisis. As restaurants like Roastery Coffee House and others have started working heavily around local and seasonal produce. Through this they are not only able to serve fresh meals, but are also able to price a dish at a lower rate.
The restaurant industry will continue to struggle in 2023 because to the same problems that have plagued it ever since the Covid-19 outbreak. Food, drink, and labour expenses were all affected by inflation in 2022, and that trend is expected to continue in 2023. Tight management and shrewd investments will be required to ensure the sector's continued viability in 2023, especially in light of persistent economic uncertainties and the need for new or improved ways to deal with the sector's ongoing labour shortages.
Increase in raw material cost
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