The trifecta of higher food costs, labor costs and energy/utility costs are now a significant challenge for a majority of foodservice operators, according to the latest National Restaurant Association Business Conditions survey.

“The restaurant industry is ending the year in an environment that’s the most typical since 2019,” says Hudson Riehle, senior vice president of Research for the National Restaurant Association. “Moderate but positive employment growth across the economy and elevated consumer spending in restaurants will allow the restaurant industry to kick off 2023 on a more optimistic note than the last few years, but operators remain braced for potential challenges in the new year.”

Food and labor costs are top concerns for any restaurant, each accounting for approximately 33 cents of every dollar in sales. The next 29 percent of sales goes to utilities, occupancy, supplies, general/administrative and repairs/maintenance.

The outlook for the coming year, according to the Association’s survey:

• 92 percent of operators say food costs are a significant challenge
• 89 percent of operators say labor costs are a significant challenge
• 50 percent of operators expect to make less profit in 2023

In November, the Producer Price Index for All Foods — which represents the change in average prices paid to domestic producers for their output — rose for the 18^th time in the last 23 months, with 15 of those increases topping 1 percent. While menu prices also increased 8.5 percent between November 2021 and November 2022, these increases are lower than grocery store prices which increased 12 percent over the same period.

“In this kind of economic environment, typical operators don’t have much margin for error. With major input costs escalating, they can make changes to align with local consumer demand while realigning operations for longer term growth,” says Riehle.

In order to manage profitability, operators have made difficult choices, including:

• 87 percent of restaurants increased menu prices
• 59 percent changed the food and beverage items offered on the menu
• 48 percent reduced hours of operation on days open
• 32 percent closed on days that normally open
• 38 percent of operators say they postponed plans for expansion
• 13 percent of operators say they eliminated third-party delivery
• 19 percent postponed plans for new hiring

Operators are still facing staffing issues as well. A majority of both fullservice operators (63 percent) and limited-service operators (61 percent) surveyed say their restaurant does not have enough employees to meet customer demand.  Eighty-seven percent of operators say they will likely hire additional employees during the next 6-12 months if there are qualified applicants available, but 79 percent of operators say their restaurant currently has job openings they are having difficulty filling.