Let’s start with the definition
Again, the question, “what does it mean to run a successful restaurant?” is not a broad-stroke query.
Yet these challenges, ranked in order by importance in Toast’s study, might sound familiar.
- Hiring Staff
- High operating and food costs
- Training Staff
Fifty-two percent of restaurant professionals named high operating and food costs a top challenge. Sixty-five percent said they raised menu prices in 2018 (up from 56 percent the previous year).
That’s a pretty telling statistic. And it likely comes in response to these other figures: 51 percent of operators said they have challenges with hiring staff; 35 percent with training staff; and 31 percent with retaining employees.
All of these concerns, given the tight labor pool and incentives needed to attract quality workers, raise costs. Fully staffing restaurants is critical, but it’s not cheap. Most vividly, 19 states increased minimum wage this year. Those wage pressures come with a price tag for consumers. But one of the issues surfacing lately is whether or not higher wages have led to improved consumer spending. For now, there seems to be a correlation. TDn2K VP of insight and knowledge recently said, “Restaurants have suffered from declining guest counts, but the relatively stronger economy of the last two years has enabled rapidly accelerating guest checks to lift the industry into positive same-store sales growth.” In other terms, the traffic problem has persisted for a decade, ever since the industry’s expansion began in the wake of the Great Recession. Only now a better economy is allowing restaurants to raise prices and offset some of the traffic hit.
This past March, for example, growth in average check was 3 percent, year-over-year. The pace at which guest checks grew accelerated throughout the year. On average, it upped 3 percent to that date since the fourth quarter of 2018. For perspective, the average was 2.4 percent for the first three quarters of last year.
Meanwhile, comparable traffic declined 3.14 percent in June and is down 2.88 percent in the rolling three months.
Restaurants simply have fewer guests to serve these days given the saturation of the industry. Couple that with rising wage pressures and the situation is complex, to say the least. Since the end of last year, the industry added jobs at a pace above 2 percent, year-over-year, every month, per TDn2K. Job growth was 2.2 percent in May. That’s placed a lot of added pressure on staffing. Toss in the stat that nearly one out of every five restaurant companies are continuously understaffed at the GM level, and there’s no surprise turnover rates are skyrocketing.
In many cases, restaurants are understaffing locations not because they can’t find willing employees—they just can’t afford them. With higher wage rates, some brands just need to do more with less. And does that negatively affect customer experience? It probably does. But there’s no escaping the challenge. Razor-thin margins operators (according to IBISWorld research, 67 percent of revenues go to wages and purchasing expenses and the average restaurant has just a 6.2 percent profit margin) aren’t going away.
Here were some other numbers from Toast in regards to challenges:
- Tough competition: 21 percent
- Understanding my restaurant’s metrics: 21 percent
- Laws, restrictions, and government regulations: 23 percent
- Optimizing speed and efficiency: 32 percent
The company dug into these to understand better how they translate to successful restaurants. It crosschecked the responses by comparing restaurants that said they saw a positive trend in net profit to restaurants that said they saw a negative trend in net profits. This explained how each group approached specific concerns.
Some takeaways: Less-profitable restaurants are aware that the cost of doing business (rent, inventory, salaries, etc) is affecting their bottom lines. Successful operators worry, too, at 49 percent, but are more focused on hiring staff to support their restaurants.
“Unprofitable restaurants may want to focus their efforts on hiring, training, and retaining high-performing staff members, as their contributions will increase sales, helping offset high operating and food costs,” Toast said.
The biggest challenges
Unprofitable versus profitable restaurants
- High operating and food costs: 60 versus 49 percent
- Hiring staff: 54 versus 53 percent
- Training staff: 26 versus 40 percent
- Retaining staff: 39 versus 29 percent
- Attracting and retaining customers: 30 versus 31 percent
- Optimizing speed and efficiency: 29 versus 36 percent
- Tough competition: 20 versus 20 percent
- Laws, restrictions, and government regulations: 26 versus 21 percent
- Understanding my restaurant’s metrics: 15 versus 21 percent