Sales Fared Well for Full-Service Restaurants in 2021, Though Profit Margins Shrunk

Despite the COVID-19 pandemic continuing to send ripples through the foodservice industry, a new report by TouchBistro shows that most restaurants didn’t experience a dip in sales last year—however, it’s not as simple as that.

The report, titled State of Full-Service Restaurants, surveyed 500 restaurant owners, presidents, CEOs and general managers to find out how FSRs are faring in terms of financial health, technology, staff and more. While 74% of restaurants surveyed reported they maintained or increased sales in 2021, profit margins shrunk to 10%, compared to 12% in 2019, due to the increasing costs of running a restaurant.

According to the respondents—who were surveyed from Oct. 26 to Nov. 2, 2021—the greatest cause of financial strain over the past 12 months was inventory costs, with 33% of operators citing this as their top expense. That was followed closely by labor costs (30%) and rent (30%).

Nearly half (47%) of respondents said most or all their suppliers increased prices during the pandemic. Of respondents that belonged to a restaurant group, the rate was even higher, with 63% saying most or all their suppliers’ prices increased. In response to rising food costs, 36% of restauranteurs reduced the number of menu items they offered.

Labor costs also are rising as operators hike wages in an effort to draw in employees amid the continued labor shortage, but many respondents say they don’t have much wiggle room when it comes to raising minimum wage. One-third reported they can only afford a 1%-2% increase.

While staffing challenges aren’t new to the restaurant industry—three in four restaurants reported regular labor shortages in TouchBistro’s 2019 report—operators are citing pandemic-related reasons for the current shortage. According to the respondents, the biggest reasons for the labor shortage are fear of working with the public due to COVID (41%) and fear of enforcing COVID restrictions (41%).

Other top reasons included lack of skills, competition from COVID benefits, competition from other restaurants, smaller labor pool, lack of interest in the industry, competition from other industries and high turnover.

“While health and safety concerns are clearly a big concern for restaurant workers, the labor shortage isn’t simply due to a fear of catching the virus,” says the report. “The labor pool has been dramatically altered by the pandemic, with 35% of operators saying that there is a lack of skilled staff available and 31% pointing to a smaller labor pool altogether.”

Also cutting into profit margins, says the report, was the cost of implementing COVID-19 safety measures, like providing PPE to staff and upgrading HVAC systems.

Changing Times

It’s clear restaurants today are different than they were pre-pandemic, and State of Full-Service Restaurants explored how FSRs are embracing the change. The report pointed out five trends for operators to keep an eye on that can help them better navigate current challenges and consider new solutions based on the learnings of other restaurants across the country. Here’s a look:

1. Off-Premise Persistence. A focus on off-premise business continues to be important, as the report notes 57% of respondents reported they conducted 21%-40% of business through online ordering platforms.
2. Contactless Payments Are Here to Stay. Fewer restaurants are accepting cash than they were in 2019, says the report, and the shift toward contactless payment—like mobile pay and tap-to-pay—is expected to grow as customers become more familiar with these payment options.
3. Automation Domination. The report encourages operators to look to restaurant technology to cut costs. “[Supplier increases] are costs that are not expected to come down anytime soon, which means operators need to look for new solutions to keep operating costs to a minimum,” it says.
4. The Recruitment & Retention Dilemma. With turnover high, the report says operators can’t just focus on increasing productivity among staff, as 49% reported they did. Instead, operators need to make restaurants a better place to work “by offering competitive wages, more benefits, a strong team culture and more professional development opportunities.”
5. The All-in-One Evolution. More operators are wanting modern POS systems—like POS systems with integrated contactless payments and reservations—to simplify operations.

While the pandemic continues to rock the industry and force operators to pivot, the report says most respondents had a positive outlook on the future of the FSR industry.

“Many operators we spoke with mentioned that the challenges of the last few years have helped them reinvent themselves and become more technologically advanced. Citing tools such as direct online ordering and QR code menus, many operators see technology as key to the future of the industry. With a little patience and a willingness to accommodate changing consumer preferences, restaurants can find success in the year ahead,” says the report.