Let's begin with the basics , for any business to survive it has to make profits and should enjoy a healthy cash flow.
The simply equation of Profits is Revenues-Expenses =Profit Or Loss
Going to the restaurant and overall F&B business , what is happening in 2022 ? let's start with the impact of Covid and the restrictions that definitely caused many restaurants to closedown as a result of reducing seating capacity and in many cases limited the business to online deliveries and orders pick up only ! here are the other factors that are contributing to the slow or fast death of the F&B business overall ?
Going back to the equation and taking the second part which is "Expenses " ,Major expenses in a restaurant business are Cost of sale , Payroll & Rent , we can share that cost of sale is on an ongoing increase where inflation hits every business sector around the globe . Direct and indirect impact of products availability on the cost of goods sold can be summarized as follows :
1-Rising cost of products that is caused by shortage of staff working in major factories and increased cost of shipping all across the world and more specifically from China !
2-Delays in products supply delivery which also has a major impact on cost of sales where many operators have to buy alternative products at higher prices from local markets.
3-The un-availability of some products is causing inconsistency in menu offerings which has a direct impact on customer's perception , loyalty and by than can impact on restaurant profitability in a way or another.
Next comes the Payroll expenses impact , we all know that as a matter of fact , most of the hospitality industry staff who had to stay home during the closure times of restaurant and overall hospitality business have shifted to other industries and have realized that they can work less for more money and benefits as the F&B industry is known for less pay and more work , result is that companies started paying more in order to attract staff to work for them , even by paying more , staff turnover is at its highest ever in the restaurant and F&B industry , most of the staff are not sticking around more than few months to a year and for a reason or another they keep searching online for better opportunities , do we blame the social media and online technology for this? Perhaps, but this is not the point , higher payroll expenses are having a direct impact on profits and this is the biggest pain for today's F&B operators , staff retention is coming at higher expenses and turnover is also another expense that many companies do not quantify !
More than 80% of restaurants have reported dipping profits in 2022 ,96% of operators have reported challenges with supply chain , food cost have increased at least for 9 out of 10 restaurants !
let's talk a bit about the first part of the equation "Revenues"
Are F&B revenues on a constant increase ? May be , yes if you are increasing the selling prices of your menu , you might notice some sales increase compared to previous years , however , we should agree that restaurant and F&B business is getting more competition than ever , and every day a new concept is coming into the market and competing on attracting the same clientele that you are now serving , not to mention that impact of indirect competition such as the increase of online food delivery business that is coming from Ghost kitchens and other delivery non restaurants businesses that usually have less expenses than a Brick-and -Mortar restaurant !
If we talk about majority and not all of the operators , their revenues are either steady or reducing or possibly increasing by 10-20% over 2019 , but with the faster increase of both cost of sales and payroll expenses as well as other operating costs and possibly landlords started imposing new rental increases on your business , all of these will lead to draining your profits and as a result most of the restaurants and F&B operators end up closing down sooner or later.
The new business cycle is starting and proving profitable for those embracing technology and that are creating more distribution channels for their products , such as catering , selling some of their products as B2B , selling some of their signature products in big grocery stores B2C , in addition to online delivery and other possible distribution channels , these increasing their revenue generating possibilities by employing less staff mainly by investing in more technology especially in their kitchens and are reaching out to their clients in different ways .
What is sure is that we will see a lot of new , more adapted concepts that goes around having more technology , less staff , smaller menus which requires less products and these concepts might require smaller spaces with higher turnaround volumes , let's watch and see what is coming in the near future .
top of page
bottom of page