Higher Prices on the Menu for Restaurants in 2021
It’s time to reshape the economics of a historically unprofitable industry
Even before Covid-19 wrought havoc on the Restaurant industry there was a simmering struggle across the industry over the increasingly difficult unit-level economics that operators were facing. With an average profit margin of just 5% every blip of operating cost pressure needed to be offset, either through price increases or other cost decreases. However, decades of new unit expansion lead to overbuilding and saturated markets — making competition for customers and employees ever harder. For customers, this meant better choices, higher quality and great prices. For restaurants it meant constant margin pressure, with diminishing ability to pass cost increases on to consumers without losing customers (low pricing power). For many restaurants the economic pressure was already becoming existential, especially in oversaturated markets with large minimum wage increases. Then the pandemic hit, and the industry that was forecast to surpass $900B in sales for the first time ended 2020 with just $659B in sales, a drop of more than 23% over the prior year. A record 110,000 of the estimated 1 million restaurant units were shuttered in 2020. But in the midst of the carnage we have seen widespread digital adoption, some of the largest price increases on record and innovative practices we wouldn’t…
