The Wall Street Journal reports that restaurants continue to struggle thanks to surging wages for workers:
The surge in restaurant and bar worker wages since 2021 followed years in which their hourly earnings ticked up by an easier to manage 2% to 4% annually. For independent restaurants that make food from scratch, higher labor costs are particularly painful.
This is flatly untrue. Here are restaurant wages adjusted for inflation:
Wages did surge in 2021 but have been flat for the past two years. Current wages are precisely on their pre-pandemic trend. This is true for all types of restaurants tracked by the BLS (fast food, sit-down, cafeterias, etc.).
As usual, the Journal tries to make its case with a combination of anecdotes and a chart that's not adjusted for inflation. This is all but deliberate dishonesty.
So what's the reason that so many restaurants are struggling? The Journal notes that sales volume is extremely healthy, which is true. However, the Census Bureau doesn't break down sales between fast food and sit-down restaurants, and I suspect that sit-down restaurants haven't recovered completely from the pandemic. There's also this:
Takeout orders account for about 80% of Johnny Roger’s dinner business, up from 20% prepandemic. Dabbs figures it costs him $1 per customer every time someone places a to-go order, because of the extra expense of packaging.
The rise of DoorDash and other food delivery services has probably hit the restaurant business pretty hard. Not only are takeout orders more expensive, but delivery services take a slice of the revenue. Between the two, revenues are down and costs are up, especially at sit-down restaurants.
What else could it be? It's pretty clear that, while the cost of food and labor has gone up, restaurants have raised their prices even more. So it can't be that. One way or another, something else has happened to the business to make it less profitable. The growth of takeout is my guess.
"all but deliberate dishonesty".....I hope your neighbor is giving your their copy and you are not paying for that trash. For my money, the only 'print' media worth reading these days is the The Economist.
Rent.
Anecdotally, I agree. Prior to March 2020, my family (four people), generally ate out once or twice a week. This was a mix of true fast food and casual dining restaurants. We rarely did take out. Then, we spent a year getting used to doing take out once a week. We now do eat out occasionally, but it tends to me more for special occasions or if we have things going on and we just don't have other options. If it's a regular night and we want food, we often still do takeout. It would not surprise me if others have also not returned to pre-Covid habits.
If the share of takeout orders really are dramatically up, that would probably explain it. I could be wrong of course, but my understanding is that beverage orders (both alcoholic AND non-alcoholic) at restaurants have wildly higher profit margins than food....and what share of delivery orders include beverages?
I think hoppyness is onto something--both hard and soft drinks are high margin and they aren't typically part of the carryout business.
I can't see any reason why carryout food would be more expensive for a sitdown restaurant than dine-in. The savings on wait staff, table cleaners, and dishwashers would far outstrip the cost of "packaging". But the lost revenue on drinks--that makes sense.
Credit card transaction fees went up, that is they now take a higher percentage of sales, so it's not just inflation generating more money for them.
The restaurant business has always been low-margin because barriers to entry are low and competition is high. "Restaurants are struggling" is an evergreen story.
Takeout is higher because people got used to ordering takeout during the pandemic and it became an established habit. I know it did for my family. We order takeout from our fave Chinese/sushi place every couple of weeks.
It isn't just because people got used to takeout. Some of us are still concerned about COVID. I've done dine-in very few times since COVID, mostly during the golden post-vaccine, pre-Omicron period where we thought vaccines had solved the problem.
Staffing is difficult, but as you point out, they're not willing to share rising revenue with staff above inflation.
Yeah, this one isn't a mystery to me at all. Delivery services like UberEats and Grubhub don't just take a slice of the revenue, they take a ridiculous slice of it.
And the pandemic changed consumer behavior very rapidly in the direction of using those services. Personally I use them all the time even now... never even occurred to me to use them before the pandemic.
Most places charge more for every item through those services.
Also nobody is forcing restaurants to use them. If they’re money losers, stop.
None of these arguments make sense.
I can see pros and cons in rise of delivery services, as your income per unit of work may decline a little bit due to added fees, but you also don't have to pay wait staff to dote on customers dining in who intend to take their time (and properly planning peak periods the wait staff can multitask on packaging togo orders when it's slow, with dedicated staff to do that during peak).
The management challenges are different, but doable, aside from restaurants always being a risky business. Delivery services may chip at revenues, but also deliver additional revenues during times when on-site dining is traditionally slow, so seems like ways here finesse pros and cons to keep your unit of work to revenue as efficient as it may get in this business short of striking gold and becoming very popular.
As someone else noted, alcohol is way more profitable for restaurants than food, take out orders don’t have booze
I wonder if when people order things online they tend to be less impulsive and more frugal then when they are in the restaurant or store, tempted by the physical appeal of the retail item or menu dish.
Has anyone done research into this?
"Dabbs figures it costs him $1 per customer every time someone places a to-go order, because of the extra expense of packaging."
Hmm. It feels like something's missing from this statement. So it costs a buck to package. Against that, there's no silver, no dishes, no busing, no salad-bar tending, and so on.
The missing beverage business hoppyness mentions would go a long way, I think-- big markups in whatever format-- plus the delivery-service cut and rents. And if they're paying more for the gas and power that keep the ovens, fryers, and grills going, that could be a significant drain they really can't avoid.
Plus, as a lot of people have mentioned, restaurants have always been dicey unless they have something special going for them.
“It feels like something's missing from this statement. So it costs a buck to package. Against that, there's no silver, no dishes, no busing, no salad-bar tending, and so on.”
This claim sounded fishy to me too, but presumably lots of restaurant staff are being paid the tipped minimum wage everywhere that’s allowed, and are supposed to make that up in tips. And I think that’s as low as $2.13 an hour. If packaging really is $1 per customer, it’s probably more costly than labor on the restaurant owner’s books.
Rent and rent-seeking behavior from delivery services, credit card processing, etc., combined with fewer impulse purchases of dessert, alcohol, sodas, appetizers, etc.
$1 for each customer in packaging costs? I doubt this is real since food trucks have always had to give you packaging and they somehow make it work… but just charge a $1 take out fee then. Seriously, capitalists seem to lack all ability to deal with their own problems sometimes.
Take out orders probably deprive restaurants of high margin revenue, too, especially beverages. Most people have their own booze or soft drinks at home. Or ice cream for that matter.
Also, take-out orders deprive restaurants of drink sales (especially alcohol) which is a major component of their profit margin.