Blog PostsRestaurants
Three developments hurting the restaurant industry
and three trends you can use to combat them
By Gabrielle Gresge
The final month of 2014 has ushered in time to look simultaneously forward and backward: backward to assess the trends and financial situation of the past year, and forward to understand the implications of those trends and how to take advantage of them. Particularly in the restaurant industry, minimum wage increases, the consequences of Obamacare and increases in commodity prices pose risks to future financial success. However, increases in the number of jobs, notable decreases in gas prices and glowing consumer confidence may just be able to combat those negative forces. Combined with revenue management aided by Source1, the beginning of 2015 could pose great opportunities to firms with the right arsenal of tools.
1. BAD NEWS: Minimum wage increases: In the wake of the 2014 midterm elections, 29 states will be offering a minimum wage above the $7.25 federal minimum. In addition, a bill has been introduced to the House which calls for an increase in the tipped minimum wage from $2.13/hour to $3.39/hour by the end of the year—there are hopes that the wage will be as high as $5.93 in 2016. These mandated increases help employees and perhaps increase work rate and morale, but greatly hurt restaurant firms, who rely greatly on the minimum wage to keep costs low. Increased wages begin a trend of increased menu prices to make up for lost profit, which can lead to lagging business and decreases in tips to waitstaff—which cause owners to fill legal implications by making up the difference in lost tips.
GOOD NEWS: Increases in the number of jobs: According to The Wall Street Journal, the United States economy has been experiencing steady job growth of 226,00 jobs added on average during the past seven months. The unemployment rate reached just about 6.1% this past August, which marks its lowest level in six years. This growth is positive in two facets: one, more jobs simply means more consumers and therefore increased profit potential. Additionally, 10% of the workforce is within the restaurant industry, signaling that the industry is growing.
2. BAD NEWS: Obamacare: The newest healthcare legislation mandates that employers employing 50 or more employees who work 30 or more hours on average per week are required to provide healthcare to their employees. According to Bloomberg, 21% of restaurant workers fit this characterization.
GOOD NEWS: Increased consumer confidence: Bloomberg claims that consumer confidence in the United States has reached its highest level in almost seven years. Pertaining to the restaurant industry, this number has directly correlated to the Restaurant Performance Index, which the National Restaurant Association says has increased nearly 2% since September 2014.
3. BAD NEWS: Increases in commodity prices: According to a recent survey by SpenDifference, 93% of restaurant chains plan to increase prices by 2.1% in 2015. These increases have been brought on as a result of increased prices in commodities, particularly in meat and pork.
GOOD NEWS: Decreases in gas prices: Gas prices have been down $0.76 since the end of June 2014. This positive change in prices can be linked directly to the fact that October’s sales total in the industry ($48.6 billion) saw a $1.3 billion increase since June.
We know the trends—now what?
The positive and negative forces affecting the restaurant industry can be manipulated to the advantage of owners through the use of revenue management as guided by Source1.
Source1 aims to utilize its connections with suppliers in order to attain the best possible pricing for its customers: hospitality firms. The trends outlined above affect every aspect of the Source1 vision; a large part of revenue management rests on economic trends. Source1’s unique partnership with thousands of brand name partners allows us to help our customers combat negative trends while maximizing positive ones.
